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Solutions - Carter-Foundations of Math Economics
Solutions - Carter-Foundations of Math Economics
= Jenny, Chris
1.6 The set of players is = {1, 2, . . . , }. The strategy space of each player is the set
of feasible outputs
= { + : }
where is the output of dam .
1.7 The player set is = {1, 2, 3}. There are 23 = 8 coalitions, namely
( ) = {, {1}, {2}, {3}, {1, 2}, {1, 3}, {2, 3}, {1, 2, 3}}
There are 2
10
/ . This implies
/ and
/ ,
1.8 Assume that ( ) . That is
or and . Consequently, . Conversely, assume .
This implies that and . Consequently
/ and
/ and therefore
-1
-1
Figure 1.1: The relation { (, ) : 2 + 2 = 1 }
1.10 The sample space of a single coin toss is { , }. The set of possible outcomes in
three tosses is the product
{
{, } {, } {, } = (, , ), (, , ), (, , ),
}
(, , ), (, , ), (, , ), (, , ), (, , )
A typical outcome is the sequence (, , ) of two heads followed by a tail.
1.11
+ = {0}
where 0 = (0, 0, . . . , 0) is the production plan using no inputs and producing no outputs.
To see this, rst note that 0 is a feasible production plan. Therefore, 0 . Also,
0 + and therefore 0 + .
To show that there is no other feasible production plan in + , we assume the contrary.
That is, we assume there is some feasible production plan y + {0}. This implies
the existence of a plan producing a positive output with no inputs. This technological
infeasible, so that
/ .
1.12
<
Note that the properties of symmetry and anti-symmetry are not mutually exclusive.
1.17 Let be an equivalence relation of a set = . That is, the relation is reexive,
symmetric and transitive. We rst show that every belongs to some equivalence
class. Let be any element in and let () be the class of elements equivalent to
, that is
() { : }
Since is reexive, and so (). Every belongs to some equivalence
class and therefore
=
()
Next, we show that the equivalence classes are either disjoint or identical, that is
() = () if and only if f() () = .
First, assume () () = . Then () but
/ (). Therefore () = ().
Conversely, assume () () = and let () (). Then and by
symmetry . Also and so by transitivity . Let be any element
in () so that . Again by transitivity and therefore (). Hence
() (). Similar reasoning implies that () (). Therefore () = ().
We conclude that the equivalence classes partition .
1.18 The set of proper coalitions is not a partition of the set of players, since any player
can belong to more than one coalition. For example, player 1 belongs to the coalitions
{1}, {1, 2} and so on.
1.19
= and
= and
Transitivity of implies . We need to show that . Assume otherwise, that
is assume This implies and by transitivity . But this implies that
which contradicts the assumption that . Therefore we conclude that
and therefore . The other result is proved in similar fashion.
1.20 asymmetric Assume .
=
while
=
Therefore
=
3
1.23
[, ] = { , , , }
(, ) = { }
1.24
() = {, , }
() = {, }
() = {, , }
() = {, }
4
and
/ . For example, 4 is a
=
1
if 1
otherwise
2. Let be any node. Either is an initial node or has a unique predecessor ().
Either () is an initial node, or it has a unique predecessor (()). Continuing
in this way, we trace out a unique path from back to an initial node. We can
be sure of eventually reaching an initial node since is nite.
1.43
(1, 2) (3, 1) = (3, 2) and (1, 2) (3, 2) = (1, 2)
6
for every 2 2
for every 1 1
which implies that inf 2 inf 1 . Note that completeness ensures the existence of
sup and inf respectively.
1.51 An argument analogous to the preceding exercise establishes = . (Completeness is not required, since for any interval = inf[, ] and = sup[, ]).
To establish the converse, assume that 1 = [1 , 1 ] and 2 = [2 , 2 ]. Consider any
1 1 and 2 2 . There are two cases.
Case 1. 1 2 Since is a chain, 1 2 = 1 1 . 1 2 = 2 2 .
Case 2. 1 2 Since is a chain, 1 2 = 2 . Now 1 1 2 2 2 .
Therefore, 2 = 1 2 1 . Similarly 2 1 1 2 2 . Therefore
1 2 = 1 2 .
We have shown that 1 2 in both cases.
1.52 Assume that is a complete relation on . This means that for every , ,
either or . In particular, letting = , for . is reexive.
8
1.53 Anti-symmetry implies that each indierence class contains a single element. If the
consumers preference relation was anti-symmetric, there would be no baskets of goods
between which the consumer was indierent. Each indierence curve which consist a
single point.
1.54 We previously showed (Exercise 1.27) that every best element is maximal. To
prove the converse, assume that is maximal in the weakly ordered set . We have to
show that for all . Assume otherwise, that is assume there is some
for which . Since is complete, this implies that which contradicts the
assumption that is maximal. Hence we conclude that for and is a
best element.
1.55 False. A chain has at most one maximal element (Exercise 1.41). Here, uniqueness
is ensured by anti-symmetry. A weakly ordered set in which the order is not antisymmetric may have multiple maximal and best elements. For example, and are
both best elements in the weakly ordered set { }.
1.56
for every
for every
which contradicts the assumption that . Therefore, the implied social ordering is
intransitive.
1.64 Assume core. In particular this implies that there does not exist any ( )
such that . Therefore Pareto.
1.65 No state will accept a cost share which exceeds what it can achieve on its own, so
that if core then
1870
5330
860
Similarly, the combined share of the two states AP and TN should not exceed 6990,
which they could achieve by proceeding without KM, that is
+ 6990
Similarly
+ 1960
+ 5020
Finally, the sum of the shares should equal the total cost
+ + = 6530
The core is the set of all allocations of the total cost which satisfy the preceding
inequalities.
For example, the allocation ( = 1500, = 5000, = 30) does not belong
to the core, since TN and KM will object to their combined share of 5030; since they
can meet their needs jointly at a total cost of 5020. One the other hand, no group
can object to the allocation ( = 1510, = 5000, = 20), which therefore
belongs to the core.
10
1.66 The usual way to model a cost allocation problem as a TP-coalitional game is
to regard the potential cost savings from cooperation as the sum to be allocated. In
this example, the total joint cost of 6530 represents a potential saving of 1530 over
the aggregate cost of 8060 if each region goes its own way. This potential saving of
1530 measures ( ). Similarly, undertaking a joint development, AP and TN could
satisfy their combined requirements at a total cost of 6890. This compares with the
standalone costs of 7100 (= 1870 (AP) + 5330 (TN)). Hence, the potential cost savings
from their collaboration are 210 (= 7100 - 6890), which measures (, ). By
similar calculations, we can compute the worth of each coalition, namely
( ) = 0
( ) = 0
(, ) = 210
(, ) = 770
( ) = 0
(, ) = 1170
( ) = 1530
An outcome in this game is an allocation of the total cost savings ( ) = 1530 amongst
the three players. This can be translated into nal cost shares by subtracting each
players share of the cost savings from their standalone cost. For example, a specic
outcome in this game is ( = 370, = 330, = 830), which corresponds to
nal cost shares of 1500 for AP, 5000 for TN and 30 for KM.
1.67 Let
= {x :
() for every }
y () implies () while
y x for every implies > for every . Summing, this
implies
>
()
=
/( )
/
where = is the number of players in and = is the number in .
Then
> for
every so that y x for every . Further, y ()
since = + = () and y since
( + /) +
( /( )) =
= ( )
11
1.68 The 7 unanimity games for the player set = {1, 2, 3} are
{
1 S = {1}, {1,2}, {1,3}, N
{1} () =
0 otherwise
{
1 S = {2}, {1,2}, {2,3}, N
{2} () =
0 otherwise
{
1 S = {3}, {1,3}, {2,3}, N
{3} () =
0 otherwise
{
1 S = {1,2}, N
{1,2} () =
0 otherwise
{
1 S = {1,3}, N
{1,3} () =
0 otherwise
{
1 S = {2,3}, N
{2,3} () =
0 otherwise
{
1 S=N
() =
0 otherwise
1.69 Firstly, consider a simple game which is a unanimity game with essential coalition
and let be an outcome in which
0
for every
= 0
for every
/
and
= 1
= 1 = ()
0 = ()
( ) = 1
(1.15)
12
Since there are no veto players ( = ), ( {}) = 1 for every player and
( {}) = 1
=
which implies that = 0 for every contradicting (1.15). Thus we conclude that
core = .
1.70 The excesses of the proper coalitions at x1 and x2 are
x1
-180
-955
-395
-365
-365
-180
{AP}
{KM}
{TN}
{AP, KM}
{AP, TN}
{KM, TN}
x2
-200
-950
-380
-380
-370
-160
Therefore
(x1 ) = (180, 180, 365, 365, 395, 955)
and
(x2 ) = (160, 200, 370, 380, 380, 950)
d(x1 ) d(x2 ) which implies x1 x2 .
1.71 It is a weak order on , that is is reexive, transitive and complete. Reexivity
so that
(, x) 0
()
+ = =
If
+ = + = =
and so on.
1.77 We show that , = max=1 satises the requirements of a metric,
namely
1. max=1 0
2. max=1 = 0 if and only if = for all .
3. max=1 = max=1
4. For every , + from previous exercise. Therefore
max max ( + )
max + max
1.78 For any , any neighborhood of 1/ contains points of (namely 1/) and points
not in (1/ + ). Hence every point in is a boundary point. Also, 0 is a boundary
point. Therefore b() = {0}. Note that b(). Therefore, has no interior
points.
14
15
2. Let denote the closure of the set . Clearly, . To show the converse, let
be a closure point of and let be a neighborhood of . Then contains
some other point = which is a closure point of . is a neighborhood of
which intersects . Hence is a closure point of .
Consequently = which implies that is closed.
Assume is a closed subset of containing . Then
=
since is closed. Hence, is a subset of every closed set containing .
1.87 Every is either an interior point or a boundary point. Consequently, the
interior of is the set of all which are not boundary points
int = b()
1.88 Assume that is closed, that is
= b() =
This implies that b() . contains its boundary.
Assume that contains its boundary, that is b(). Then
= b() =
is closed.
16
1.89 Assume is bounded, and let = (). Choose any . For all ,
(, ) < + 1. Therefore, (, + 1). is contained in the open ball
(, + 1).
Conversely, assume is contained in the open ball (). Then for any ,
(, ) (, ) + (, ) < 2
by the triangle inequality. Therefore () < 2 and the set is bounded.
1.90 Let (0 ). For every , (, ) < and therefore
(, 0 ) (, ) + (, 0 ) < + = 2
so that 2 (0 ).
1.91 Let y0 . For any > 0, let y = y be the production plan which is units
less in every commodity. Then, for any y (y )
(y, y ) <
for every
/2 ()
2 =
/2 ()
(, ) < /2
17
(, )
1
2
lim = 0
However, > 0 for all . There is no limit to the number of guests who will get a
share of the cake, although the shares will get vanishingly small for large parties.
1.99 Suppose . That is, there exists some such that ( , ) < /2 for all
. Then, for all ,
( , ) ( , ) + (, )
< /2 + /2 =
1.100 Let ( ) be a Cauchy sequence. There exists some such that
( ) < 1
for all . Let
= max{ (1 ), (2 ), . . . , ( 1 ), 1 }
Every belongs to ( , + 1), the ball of radius + 1 centered on .
1.101 Let ( ) be a bounded increasing sequence in and let = { } be the set of
elements of ( ). Let be the least upper bound of . We show that .
First observe that for every (since is an upper bound). Since is the least
upper bound, for every > 0 there exists some element such that > . Since
( ) is increasing, we must have
< for every
That is, for every > 0 there exists an such that
( , ) < for every
.
1.102 If > 1, the sequence , 2 , 3 , . . . is unbounded.
Otherwise, if 1, 1 and the sequence is decreasing and bounded by 1.
Therefore the sequence converges (Exercise 1.101). Let = lim . Then
+1 =
and therefore
= lim +1 = lim =
1. For every
(
Expanding
2
2) 0
2 2 2 + 2 0
2 + 2 2 2
Dividing by
2
2 2
+
for every > 0. Therefore
1
2
2
+
1
2
+
2
2
1
=
2
That is
(
1 +
2
1
)
(
1
2
=
2
(
)
1
2
2
2
= 2
0
1.104 The following sequence approximates the square root of any positive number
1 =
1(
)
+1 = +
2
=1
1.109 If player 1 picks closed balls whose radius decreases by at least half after each
pair of moves, then { 1 , 3 , 5 , . . . } is a nested sequence of closed sets which has a
nonempty intersection (Exercise 1.108).
1.110 Let ( ) be a sequence in with closed and compact. Since is
compact, there exists a convergent subsequence . Since is closed,
we must have (Exercise 1.106). Therefore ( ) contains a subsequence which
converges in , so that is compact.
1.111 Let ( ) be a Cauchy sequence in a metric space. For every > 0, there exists
such that
( , ) < /2 for all ,
Trivially, if ( ) converges, it has a convergent subsequence (the whole sequence).
Conversely, assume that ( ) has a subsequence ( ) which converges to . That is,
there exists some such that
( , ) < /2 for all
Therefore, by the triangle inequality
( , ) ( , ) + ( , ) < /2 + /2 =
for all max ,
21
=1
=1
The process must terminate with a nite number of open balls. Otherwise, if the process
could be continued indenitely, we could construct an innite sequence (1 , 2 , 3 , . . . )
which had no convergent subsequence. The would contradict the compactness of .
1.113 Assume is compact. The previous exercise showed that is totally bounded.
Further, since every sequence has a convergent subsequence, every Cauchy sequence
converges (Exercise 1.111). Therefore is complete.
Conversely, assume that is complete and totally bounded and let 1 = { 11 , 21 , 31 , . . . }
be an innite sequence of points in . Since is totally bounded, it is covered by a
nite collection of open balls of radius 1/2. 1 has a subsequence 2 = { 12 , 22 , 32 , . . . }
all of whose points lie in one of the open balls. Similarly, 2 has a subsequence
3 = { 13 , 23 , 33 , . . . } all of whose points lie in an open ball of radius 1/3. Continuing in this fashion, we construct a sequence of subsequences, each of which lies in a
ball of smaller and smaller radius. Consequently, successive terms of the diagonal
subsequence { 11 , 22 , 33 , . . . } get closer and closer together. That is, is a Cauchy
sequence. Since is complete, converges in and 1 has a convergent subsequence
. Hence, is compact.
1.114
Hence ( ) >
( )
=1
=
=
= which implies
Consequently, does not have the nite intersection property. There exists a nite
subcollection { 1 , 2 , . . . , } such that
=1
=1
=1
=1
23
1.
x+y =x+z
x + (x + y) = x + (x + z)
(x + x) + y = (x + x) + z
0+y =0+z
y=z
24
2.
x = y
1
1
(x) = (y)
(
)
( )
1
1
x=
y
x=y
3. x = x implies
( )x = x x = 0
Provided x = 0, we must have
( )x = 0x
That is = 0 which implies = .
4.
( )x = ( + ())x
= x + ()x
= x x
5.
(x y) = (x + (1)y)
= x + (1)y
= x y
6.
0 = (x + (x))
= x + (x)
= x x
=0
1.123 The linear hull of the vectors {(1, 0), (0, 2)} is
{ (
)
( )}
1
0
lin {(1, 0), (0, 2)} = 1
+ 2
0
2
)
(
{
1 }
=
2
= 2
The linear hull of the vectors {(1, 0), (0, 2)} is the whole plane 2 . Figure 1.4 illustrates
how any vector in 2 can be obtained as a linear combination of {(1, 0), (0, 2)}.
1.124
25
(2, 3)
3
2
1
-2
-1
2.
() =
() +
1 +
()
= ()
1.125
Similarly
x = (0, 2 , 3 , . . . , )
= (0, 2 , 3 , . . . , )
Therefore is a subspace of . Generalizing, any set of vectors with one or
more coordinates identically zero is a subspace of .
4. We will meet some more complicated subspaces in Chapter 2.
1.127 No, x
/ + if x + unless x = 0. + is an example of a cone (Section 1.4.5).
1.128 lin is a subspace Let x, y be two elements in lin . x is a linear combination
of elements of , that is
x = 1 1 + 2 2 + . . .
Similarly
y = 1 1 + 2 2 + . . .
and
x + y = (1 + 1 )1 + (2 + 2 )2 + + ( + ) lin
and
x = 1 1 + 2 2 + + lin
This shows that lin is closed under addition and scalar multiplication and hence
is a subspace.
lin is the smallest subspace containing Let be any subspace containing .
Then contains all linear combinations of elements in , so that lin .
Hence lin is the smallest subspace containing S.
1.129 The previous exercise showed that lin is a subspace. Therefore, if = lin ,
is a subspace.
Conversely, assume that is a subspace. Then is the smallest subspace containing
, and therefore = lin (again by the previous exercise).
1.130 Let x, y = 1 2 . Hence x, y 1 and for any , , x + y 1 .
Similarly x + y 2 and therefore x + y . is a subspace.
1.131 Let = 1 + 2 . First note that 0 = 0 + 0 . Suppose x, y belong to . Then
there exist s1 , t1 1 and s2 , t2 2 such that x = s1 + s2 and y = t1 + t2 . For any
, ,
x + y = (s1 + s2 ) + (t1 + t2 )
= (s1 + t1 ) + (s2 + t2 )
since s1 + t1 1 and s2 + t2 2 .
1.132 Let
1 = { (1, 0) : }
2 = { (0, 1) : }
27
1 and 2 are respectively the horizontal and vertical axes in 2 . Their union is not a
subspace, since for example
( ) (
) (
)
1
1
0
=
+
/ 1 2
1
0
1
However, any vector in 2 can be written as the sum of an element of 1 and an element
of 2 . Therefore, their sum is the whole space 2 , that is
1 + 2 = 2
1.133 Assume that is linearly dependent, that is there exists x1 , . . . , x and
2 , . . . , such that
x1 = 2 x2 + 3 x3 + . . . , x
Rearranging, this implies
1x1 2 x2 3 x3 . . . x = 0
Conversely, assume there exist x1 , x2 , . . . , x x and 1 , 2 , . . . , such that
1 x1 + 2 x2 . . . + x = 0
Assume without loss of generality that 1 = 0. Then
x1 =
2
3
x2
x3 . . .
x
1
1
1
(1.16)
Assume that the coalitions are ordered so that 1 has the smallest number of players
of any of the coalitions 1 , 2 , . . . , . This implies that no coalition 2 , 3 , . . . , is
a subset of 1 and
(1 ) = 0
for every = 2, 3, . . . ,
(1.17)
(1.18)
=2
for every
(1.19)
.
By Zorns lemma, has a maximal element . We show that is a basis
for .
is linearly independent since . Suppose that does not span so that
lin . Then there exists some x lin . The set {x} is a linearly
independent and contains , which contradicts the assumption that is the maximal
element of . Consequently, we conclude that spans and hence is a basis.
1.139 Exercise 1.134 established that the set = { (1, 1, 1), (0, 1, 1), (0, 0, 1)} is linearly
independent. Since dim 3 = 3, any other vectors must be linearly dependent on .
That is lin = 3 . is a basis.
By a similar argument to exercise 1.134, it is readily seen that {(1, 0, 0), (0, 1, 0), (0, 0, 1)}
is linearly independent and hence constitutes a basis.
29
1 b1 + 1 a1 + 2 a2 + . . . + a = 0
At least one = 0. Deleting the corresponding element a , we obtain another set 1
of elements
1 = {b1 , a1 , a2 , . . . , a1 , a+1 , . . . , a }
which is also spans . Adding the second element from , we obtain the + 1 element
set
2 = {b1 , b2 , a1 , a2 , . . . , a1 , a+1 , . . . , a }
which again is linearly dependent and spans .
Continuing in this way, we can replace vectors in with the vectors from while
maintaining a spanning set. This process cannot eliminate all the vectors in , because
this would imply that was linearly dependent. (Otherwise, the remaining b would be
linear combinations of preceding elements of .) We conclude that necessarily .
Reversing the process and replacing elements of with elements of establishes that
. Together these inequalities imply that = and and have the same
number of elements.
1.141 Suppose that the coalitions are ordered in some way, so that
( ) = {0 , 1 , 2 , . . . , 2 1 }
with 0 = . There are 2 coalitions. Each game corresponds to a unique list
of length 2 of coalitional worths
v = (0 , 1 , 2 , . . . , 2 1 )
all games is formally identical to the subspace of 2 in which the rst component
(1.20)
1
1 x1 + 2 x2 + + x
is an ane set.
Conversely, suppose that is an ane set containing 0, that is
x + (1 )y
(
x+y =2
1
1
x+ y
2
2
1. Exercise 1.150
33
Then
= x0 +
is an ane set (Exercise 1.150) which strictly contains . This contradicts the
denition of as a maximal proper ane set.
5. Let x1
/ . By the previous part, x lin {x1 , }. That is, there exists
such that
x = x1 + v for some v
To see that is unique, suppose that there exists such that
x = x1 + v for some v
Subtracting
0 = ( )x1 + (v v )
/ .
which implies that = since x1
1.154 Assume x, y . That is, x, y and
=
= ( )
+ (1 ) =
+ (1 )
= ( ) + (1 )( )
= ( )
Hence is an ane subset of .
1.155 See Exercise 1.129.
1.156 No. A straight line through any two points in + extends outside + . Put
dierently, the ane hull of + is the whole space .
1.157 Let
= a x1
= a {0, x2 x1 , x3 x1 , . . . , x x1 }
is a subspace (0 ) and
a = + x1
and
dim a = dim
Note that the choice of x1 is arbitrary.
is anely dependent if and only if there exists some x such that x
x1 .
a ( {x }). Since the choice of x1 is arbitrary, we assume that x =
x a ( {x }) x ( + x1 ) {x }
x x1 {x x1 }
x x1 lin {x2 x1 , x3 x1 , . . . , x1 x1 ,
. . . , x+1 x1 , . . . , x x1 }
34
x1 = 0
=2
Let 1 =
=2
. Then
1 x1 + 2 x2 + . . . + x = 0
and
1 + 2 + . . . + = 0
as required.
1.159 Let
= a x1 = a { 0, x2 x1 , x3 x1 , . . . , x x1 }
Then
a = x1 +
If is anely independent, every x a has a unique representation as
x = x1 + v,
with
v = 2 (x2 x1 ) + 3 (x3 x1 ) + + (x x1 )
so that
x = x1 + 2 (x2 x1 ) + 3 (x3 x1 ) + + (x x1 )
Dene 1 = 1 =2 . Then
x = 1 x1 + 2 x2 + + x
with
1 + 2 + + = 1
x is a unique ane combination of the elements of .
1.160 Assume that , (, ) . This means that < < and < < . For
every 0 1
+ (1 ) > + (1 )
35
and
+ (1 ) < + (1 )
Therefore < +(1) < and +(1) (, ). (, ) is convex. Substituting
for < demonstrates that [, ] is convex.
Let be an arbitrary convex set in . Assume that is not an interval. This implies
that there exist numbers , , such that < < and , while
/ . Dene
=
so that
1=
+
=
/
which contradicts the assumption that is convex. We conclude that every convex set
in is an interval. Note that may be a hybrid interval such (, ] or [, ) as well as
an open (, ) or closed [, ] interval.
1.161 Let (, ) be a TP-coalitional game. If core(, ) = then it is trivially convex.
Otherwise, assume core(, ) is nonempty and let x1 and x2 belong to core(, ).
That is
1 ()
for every
1 = ( )
1 ()
for every
1 = ( )
Similarly
(1 )2 (1 )()
for every
(1 )2 = (1 )( )
1 + (1 )2 () + (1 )() = ()
1 + (1 )2 = ( ) + (1 )( ) = ( )
for every
1.162 Let be a collection of convex sets and let x, y belong to . for every
, x, y and therefore
x + (1 )y for all 0 1 (since is convex).
Therefore x + (1 )y .
1.163 Fix some output . Assume that x1 , x2 (). This implies that both (, x1 )
and (, x2 ) belong to the production possibility set . If is convex
(, x1 ) + (1 )(, x2 ) = ( + (1 ), x1 + (1 )x2 )
= (, x1 + (1 )x2 )
for every [0, 1]. This implies that x1 + (1 )x2 (). Since the choice of
was arbitrary, this implies that () is convex for every .
1.164 Assume 1 and 2 are convex sets. Let = 1 + 2 . Suppose x, y belong to .
Then there exist s1 , t1 1 and s2 , t2 2 such that x = s1 + s2 and y = t1 + t2 . For
any [0, 1]
x + (1 )y = s1 + s2 + (1 )t1 + t2
= s1 + (1 )t1 + s2 + (1 )t2
since s1 + (1 )t1 1 and s2 + (1 )t2 2 . The argument readily extends to
any nite number of sets.
1.165 Without loss of generality, assume that = 2. Let = 1 2 = 1 2 .
Suppose x = (1 , 2 ) and y = (1 , 2 ) belong to . Then
x + (1 )y = (1 , 2 ) + (1 )(1 , 2 )
= (1 , 2 ) + ((1 )1 , (1 )2 )
= (1 + (1 )1 , 2 + (1 )2 )
1.166 Let x, y be points in so that x, y . Since is convex, x+ (1 )y
for every 0 1. Multiplying by
(x + (1 )y) = (x) + (1 )(y)
Therefore, is convex.
1.167 Combine Exercises 1.164 and 1.166.
1.168 The inclusion + (1 ) is true for any set (whether convex or not),
since for every x
x = x + (1 )x + (1 )
The reverse inclusion +(1) follows directly from the denition of convexity.
1.169 Given any two convex sets and in a linear space, the largest convex set
contained in both is ; the smallest convex set containing both is conv .
Therefore, the set of all convex sets is a lattice with
=
= conv
The lattice is complete since every collection { } has a least upper bound conv
and a greatest lower bound .
37
1.170 If a set contains all convex combinations of its elements, it contains all convex
combinations of any two points, and hence is convex.
Conversely, assume that is convex. Let x be a convex combination of elements in ,
that is let
x = 1 x1 + 2 x2 + . . . + x
where x1 , x2 , . . . , x and 1 , 2 , . . . , + with 1 + 2 + . . . + = 1. We
need to show that x .
We proceed by induction of the number of points . Clearly, x if = 1 or = 2.
To show that it is true for = 3, let
x = 1 x1 + 2 x2 + 3 x3
where x1 , x2 , x3 and 1 , 2 , 3 + with 1 + 2 + 3 = 1. Assume that > 0
for all (otherwise = 1 or = 2) so that 1 < 1. Rewriting
x = 1 x1 + 2 x2 + 3 x3
(
)
2
2
= 1 x1 + (1 1 )
x2 +
x3
1 1
1 1
= 1 x1 + (1 1 )y
where
(
y=
2
2
x2 +
x3
1 1
1 1
38
and therefore
x=
x1 +
=1
x2
=1
= x1 + x2
1 ,
x1 1
2 ,
x2 2
=1
x2 =
=1
and
x = x1 + x2 =
1 +
=1
2 conv (1 + 2 )
=1
1. Let
x = 1 x1 + 2 x2 + . . . + x
(1.21)
(1.22)
and
1 + 2 + . . . + = 0
2. Combining (1.21) and (1.22)
x = x 0
x
x
=
=1
=1
( )x
=1
for any .
}
{
3. Let = min : > 0 =
We note that
> 0 since > 0 for every .
39
(1.23)
(
)
(
1
= 1
1 +
2
+ (1 1 )
(
)
)
+ (1 1 )
2 +
2
( )
(
)
= 1 2
+ (1 1 )2
(
)
(
)
+ 1 (1 2 )
+ (1 1 )(1 2 )
( )
(
)
(
)
(
)
= 1
+ 2
+ 3
+ 4
40
(1 , c)
x
1
(1 , -c)
Figure 1.5: A cube in 2
where 0 1 and
1 + 2 + 3 + 4 = 1 2 + (1 1 )2 + 1 (1 2 ) + (1 1 )(1 2 )
= 1 2 + 2 1 2 + 1 1 2 + 1 1 2 + 1 2
=1
That is
{(
conv
) (
) (
) (
)}
,
,
,
+
2
so that
= + (1 )()
Then
1
1
1
2
2
2
x = . . . = . . . + (1 )
...
1
1
1
41
x conv { (, , . . . , ) }
In other words
conv { (, , . . . , ) }
3. Let denote the set of points of the form { (, , . . . , ) } . Clearly,
every point in is an extreme point of . Conversely, we have shown that
conv . Therefore, no point x can be an extreme point of .
is the set of extreme points of .
4. Since is convex, and , conv . Consequently, = conv .
1.178 Let x, y belong to is convex. For any [0, 1]
x + (1 )y since convex
x + (1 )y
/ since is a face
Thus x + (1 )y which is convex.
1.179
1. Trivial.
(1.24)
y=
=1
=1
(
)
+ (1 ) x =
x
=1
=1
where
= + (1 )
42
Note that 0 1, so that either < 1 or = 1. We show that both cases lead
to a contradiction.
< 1. Then
1
(
)
1
+ (1 ) x
1 =1
x =
for every =
(1.25)
x ,
=1
= 1
=1
x ,
=1
= 1
=1
Substituting in (1.25)
x1 =
=
x + (1 )
=1
=1
(
)
+ (1 ) x
=1
Since
=1
(
)
+ (1 ) = =1 + (1 ) =1 = 1
x1 =
(
)
+ (1 ) x
=1
(
)
+ (1 ) (x x1 )
=2
1.182 Let be the dimension of a convex set in a linear space . Then = dim a
and there exists a set { x1 , x2 , . . . , x+1 } of anely independent points in . Dene
= conv { x1 , x2 , . . . , x+1 }
Then is an -dimensional simplex contained in .
1.183 Let w = (({1}), ({2}), . . . , ({})) denote the vector of individual worths and
let denote the surplus to be distributed, that is
= ( )
({})
=
({})
=
Each y is an imputation since ({}) and
=
({}) + = ( )
({})
so that
= ({}) +
Since x is an imputation
0
(
)
=
({}) / = 1
=
({}) +
= ({}) +
=
Therefore x conv {y1 , y2 , . . . , y } = , that is . Since we previously showed
that , we have established that = , which is an 1 dimensional simplex in
.
44
1. A non-convex cone
2. A convex set
3. A convex cone
Figure 1.6: A cone which is not convex, a convex set and a convex cone
1.184 See Figure 1.6.
1.185 Let x = (1 , 2 , . . . , ) belong to + , which means that 0 for every . For
every > 0
x = (x1 , x2 , . . . , x )
and 0 for every . Therefore x + . + is a cone in .
1.186 Assume
x + y for every x, y and , +
(1.26)
x+
y
+
+
and therefore
x + y
1.187 Assume satises
1. for every 0
2. +
45
By (1), is a cone. To show that it is convex, let x and y belong to . By (1), x and
(1 )y belong to , and therefore x + (1 )y belongs to by (2). is convex.
Conversely, assume that is a convex cone. Then
for every 0
46
=1
y1 =
=1
If y = 0, at least one of the > 0 and hence y1 < 0 since 1 < 0 for =
1, 2, . . . , 8.
2. Free disposal requires that y , y y = y . Consider the production
plan y = (2, 2, 2, 2). Note that y y3 and y y6 . Suppose that
y . Then there exist 1 , 2 , . . . , 8 0 such that
y=
=1
(1.27)
(1.28)
5. E( ) = cone { y3 , y7 }.
1.192 This is precisely analogous to Exercise 1.128. We observe that
1. cone is a convex cone.
2. if is any convex cone containing , then conv .
Therefore, cone is the smallest convex cone containing S.
1.193 For any set , cone . If is a convex cone, Exercise 1.186 implies that
cone .
1.194
(1.29)
=
x
x
=1
=1
( )x
(1.30)
=1
for any .
{
}
3. Let = min : > 0 =
We note that
> 0 since > 0 for every .
If > 0, then / / and therefore 0.
If 0 then > 0 for every > 0.
Therefore 0 for every and
= 0 for = .
Therefore, (1.30) represents x as a nonnegative combination of only 1 points.
4. This process can be repeated until x is represented as a convex combination of
at most points.
1.195
0
0
/ a ,
dim cone = dim a + 1 = dim + 1
48
(
)
x
2. For every x conv ,
conv and there exist (Exercise 1.194) + 1
1
(
)
x
points
such that
1
(
x
1
(
conv {
x1
1
) (
)
(
)
x2
x+1
,
,...
}
1
1
1. (x, y) = x y 0.
=1
=1
x = max = max = x
To prove the triangle inequality, we note that for any ,
max( + ) max + max
Therefore
=1
=1
=1
and outputs may balance out yielding a zero average. That is, ( =1 )/ = 0 does
not imply that = 0 for all .
49
x x
x
x
=
1
1
1
(1.31)
1
1 1 1
+ + +
+ ...
2 4 8 16
1
1
1
1 1 1
+ + +
+ =
=
2 4 8 16
1
1
50
1
2
=2
1.207 The present value of the payments is the th partial sum of the geometric
series + + 2 + 3 + . . . which (using (1.31)) is given by
Present value = =
1.208 By Exercise 1.93, there exists an open set 1 such that 2 = . For every
x 1 , there exists an open ball (x) such that (x) and therefore (x)2 = .
The collection { (x) } of open balls is an open cover for 1 . Since 1 is compact there
exists a nite subcover, that is there exists points x1 , x2 , . . . , x in 1 such that
1
(x )
=1
=1
1
y
Then
x = 1 x1 + 2 x2 + + x
where =
/ ,
=1 = 1 and x < for every = 1, 2, . . . .
Consequently x 0.
51
3. Since
=1 = 1 for every ,
=1 = 1. Consequently, at least one
of the coecients = 0. Since x1 , x2 , . . . , x are linearly independent, x = 0
(Exercise 1.133) and therefore x = 0. But (x, ) is a subsequence of (x ).
This contradicts the earlier conclusion (part 1) that x 0.
1.211
x =
1 x1 + 2 x2 + + x
( )x = x x <
=1
=1
<
=1
x x = (
)x
x
=1
=1
Since
for every , x x 0 which implies that x x.
3. Since (x ) was an arbitrary Cauchy sequence, we have shown that every Cauchy
sequence in converges. Hence is complete.
52
1.212 Let be an open set according to the and let x0 be a point in . Since is
open, it contains an open ball in the topology about x0 , namely (x0 , ) = { x
: x x0 < } Let
(x0 , ) = { x : x x0 < }
be the open ball about x0 in the topology. The condition (1.15) implies that
(x0 , ) (x0 , ) and therefore
x0 (x0 , )
is open in the topology. Similarly, any open in the topology is open in
the topology.
1.213 Let be a normed linear space of dimension . and let { x1 , x2 , . . . , x } be
a basis for . Let and be two norms on . Every x has a unique
representation
x = 1 x1 + 2 x2 + + x
Repeated application of the triangle inequality gives
x = 1 x1 + 2 x2 + + x
x
=1
=1
=1
where = max x .
By Lemma 1.1, there is a positive constant such that
=1
x /
Therefore x .
53
That is, x x.
A similar proof can be given using the Euclidean norm 2 , but it is slightly more
complicated. This illustrates an instance where the sup norm is more tractable.
1.215
x =
=1
Since is bounded, so is x . That is, there exists such that x for all
. Applying Lemma 1.1, there is a positive constant such that
=1
3. Similarly,
(1) has a subsequence for which the corresponding scalars 2 converge to 2 . Repeating this process times (this is were niteness is important), we deduce the existence of a subsequence
() whose scalars converge to
(1 , 2 , . . . , ).
4. Let
x=
=1
Since
for every , x x 0 which implies that x x.
5. Since is closed, x .
6. We have shown that every sequence in has a subsequence which converges in
. is compact.
1.216 Let x and y belong to = { x : x < 1 }, the unit ball in the normed linear
space . Then x , y < 1. By the triangle inequality
x + (1 )y x + (1 ) y + (1 ) = 1
Hence x + (1 )y .
54
1.217 If int is empty, it is trivially convex. Therefore, assume int = and let
x, y int . We must show that z = x + (1 )y int .
Since x, y int , there exists some > 0 such that the open balls (x, ) and (y, )
are both contained in int . Let w be any vector with w < . The point
z + w = (x + w) + (1 )(y + w)
since x + w (x, ) and y + w (y, ) and is convex. Hence z is an
interior point of .
Similarly, if is empty, it is trivially convex. Therefore, assume = and let x, y .
Choose some . We must show that = x + (1 )y .
There exist sequences (x ) and (y ) in which converge to x and y respectively
(Exercise 1.105). Since is convex, the sequence (x + (1 )y ) lies in and
moreover converges to x + (1 )y = z (Exercise 1.202). Therefore is the limit of
a sequence in and hence . Therefore, is convex.
= x1 + (1 )x2 for some (0, 1). Since x1 ,
1.218 Let x
x1 +
x1 ( + )
of radius is
The open ball about x
+
(
x, ) = x
= x1 + (1 )x2 +
( + ) + (1 )x2 +
= + (1 )x2 + (1 + )
(
)
1+
= + (1 ) x2 +
1
Since x2 int
x2 +
(
)
1+
1+
= x2 ,
1
1
To show the converse, choose any x and let x0 for every . By Exercise
1.218, x + (1 )x0 for all 0 < < 1. This implies that x + (1 )x0
= for all 0 < < 1, and therefore that x0 = lim0 x + (1 )x0 .
1.220 Assume that x int . Then, there exists some such that
(x, ) = x +
55
1
1
x1 + x2
2
2
x is not an extreme point. We have shown that no interior point is an extreme point;
hence every extreme point must be a boundary point.
1.221 We showed in Exercise 1.220 that ext() b(). To show the converse, assume
that x is a boundary point which is not an extreme point. That is, there exist x1 , x2
such that
x = x1 + (1 )x2
0<<1
=1
(x, ) = x +
(
)
=
x +
=1
=
=
)
x
=1
(
+
=1
( x + )
=1
Since is open, there exists some such that x + for all . For this
(x, ) conv
Therefore conv is open.
1.224
conv = { (1 , 2 ) 2 : 2 > 0 }
56
=1
=1
x <
=1
x =
=1
where x .
For each , the sequence (x ) lies in a compact set and hence contains a convergent subsequence. Similarly, the sequence of coecients ( ) [0, 1] is bounded
and contains a convergent subsequence (Bolzano-Weierstrass theorem, Exercise
1.119). Proceeding coordinate by coordinate as in Exercise 1.215, we can construct convergent subsequences and x x .
3. Let
x=
+1
=1
Since
+1
x x =
( x x )
=
=
=1
+1
x x
=1
+1
=1
+1
x x + x x
+1
x +
x x
=1
=1
0
as , x x , and x are bounded. Therefore x x.
+1
4. Since 0 and =1 = 1 for every , we conclude that = lim 0 and
+1
= 1. Furthermore, since is closed, x for every and therefore
=1
+1
x = =1 x conv .
57
2. Exercise 1.177.
3. is the convex hull of a nite set and hence is compact (Exercise 1.225)
4. is a closed subset of a compact set and hence is compact (Exercise 1.110).
1.227 A polytope is the convex hull of a nite set. Any nite set is compact.
1.228 The unit simplex 1 in is the convex hull of the unit vectors e1 , e2 , . . . , e ,
that is
1 = conv { e1 , e2 , . . . , e }
{
}
= (1 , 2 , . . . , ) : 0 and
= 1
This simplex has a nonempty relative interior, namely
{
}
ri = (1 , 2 , . . . , ) : > 0 and
< 1
1.229 Let = dim . By Exercise 1.182, contains a simplex of the same dimension. That is, there exist vertices v1 , v2 , . . . , v such that
= conv { v1 , v2 , . . . , v }
{
= 1 v1 + 2 v2 + + v :
1 , 2 , . . . , 0,
1 + 2 + . . . + = 1
which is nonempty.
Note, the proposition is trivially true for a set containing a single point ( = 0), since
this point is the whole ane space.
1.230 If int = , then a = and ri = int . The converse follows from Exercise
1.229.
1.231 Since
> inf
=1
58
=1
=1
=1
For any [0, 1], the cost of the weighted average bundle z = x + (1 )y (where
each component = + (1 ) ) is
=1
(
=1
+ (1 )
+ (1 )
=1
=1
+ (1 )
=
Therefore z (p, ). The budget set (p, ) is convex.
1.233
=1 < . Let =
=1 be the unspent income. Spending the residual
on good 1, the commodity bundle x = x + 1 e1 is aordable
=1
+ 1
=1
=
1
=1 < . This implies that x int (p, ). Therefore, there exists a neigh
borhood of x with (p, ). Within this neighborhood, there exists some
x (p, ) with x x , which contradicts the assumption that x is the best
element in (p, ).
1.236
60
(
)
3. (y) = (y) (Exercise 1.56). Therefore, (y) is closed if and only if (y) is
open (Exercise 1.80). Similarly, (y) is closed if and only if (y) is open.
1.237
2. Yes. Setting y = y for every , their denition implies that for every sequence
(x ) in with x y, x = lim x y. That is, the upper contour set
(y) = { x : x y } is closed. Similarly, the lower contour set (y) is closed.
Conversely, assume that the preference relation is continuous (in our denition).
We show that the set = { (x, y) : x y } is open. Let (x0 , y0 ) . Then
x0 y0 . By continuity, there exists neighborhoods (x0 ) and (y0 ) of x0 and
y0 such that x y for every x (x0 ) and y (y0 ). Hence, for every
(x, y) = (x0 ) (y0 ), x y. Therefore which implies that is
open. Consequently = { (x, y) : x y } is closed.
1.238 Assume the contrary. That is, assume there is no y with x y z. Since is
complete, either y x0 or y x0 for every y (Exercise 1.56). Since there is no
y such that x0 y z0
y z0 = y x0 = y x0
Therefore (z0 ) = (x0 ). By continuity, (z0 ) is open and (x0 ) is closed. Hence
(z0 ) = (x0 ) is both open and closed (Exercise 1.83).
Alternatively, (x0 ) and (z0 ) are both open sets which partition . This contradicts
the assumption that is connected.
1.239 Let denote the set of best elements. As demonstrated in the preceding proof
=
(y )
y
61
1.241 Essentially, consumer theory (in economics) is concerned with predicting the way
in which consumer purchases vary with changes in observable parameters such as prices
and incomes. Predictions are deduced by assuming that the consumer will consistently
choose the best aordable alternative in her budget set. The theory would be empty
if there was no such optimal choice.
1.242
that Nu = 2 .
1.243 Assume is convex. Choose any y and let x (y). Then x y. Since
is convex, this implies that
x + (1 )y y
for every 0 1
and therefore
x + (1 )y (y)
for every 0 1
for every 0 1
which implies
x + (1 )y y
for every 0 1
62
(1.32)
(1.33)
(1.34)
and
(, z) = ()
(
)
= ()
+ (1 )
= ()
(
(1 )
= ()
+ (1 ) ()
= (, x) + (1 )(, y)
Using (1.55) to (1.57), this implies that
( , z) = ( , x),
<
( , z) < ( , x)
( , z) ( , x),
>
for every 0 < < 1, Therefore d(z) d(x). Thus z x, which establishes that
is strictly convex.
The set of feasible outcomes is convex. Assume x, y Nu , x = y. Then
d(x) = d(y) and
z = x + (1 )y x
for every 0 < < 1 which contradicts the assumption that x Nu. We conclude that
the nucleolus contains only one element.
63
2. (a) By denition, x
/ (x). So (x) (y) = implies x (y), that is
x y contradicting the noncomparability of x and y. Therefore
(x) (y) =
(b) By assumption, there exists at least one pair x0 , y0 such that x0 y0 . By
the previous part
(x0 ) (y0 ) =
This implies either x x0 or x y0 . Without loss of generality, assume
x y0 . Again using the previous part, we have
(x) (y0 ) =
Since x and y are not comparable, y
/ (x) which implies that y (y0 ).
Therefore x y0 and y y0 or alternatively
y0 (x0 ) (y0 ) =
(c) Clearly (x) (x) and (y) (y). Consequently
(x) (y) (x) (y)
Let z (x) (y). That is, z x. If x z, then transitivity implies x
z y, which contradicts the noncomparability of x and y. Consequently
x z which implies z x and z (x). Similarly z (y) and therefore
(x) (y) = (x) (y)
3. If x and y are noncomparable, (x)(y) is a nonempty proper subset of . By
continuity (x) (y) = (x) (y) is both open and closed which contradicts
the assumption that is connected (Exercise 1.83). We conclude that must
be complete.
1.247 Assume x y. Then x (y). Since (y) is open, x int (y). Also
y (y). By Exercise 1.218, x + (1 )y int (y) for every 0 < < 1, which
implies
x + (1 )y y for every 0 < < 1
64
1.248 For every x , there exists some z such that z x (Nonsatiation). For any ,
choose some (0, / x z) and let y = z + (1 )x. Then
x y = x z <
Moreover, since is strictly convex,
y = z + (1 )x x
Thus, is locally nonsatiated.
We have previously shown that local nonsatiation implies nonsatiation (Exercise 1.233).
Consequently, these two properties are equivalent for strictly convex preferences.
1.249 Assume that x is not strongly Pareto ecient. That is, there exist allocation y
such that y x for all and some individual for which y x. Take 1 percent
of s consumption and distribute it equally to the other participants. By continuity,
1
there exists some such that y x. The other agents receive y + 1
y which, by
monotonicity, they strictly prefer to x .
1.250 Assume that (p , x ) is a competitive equilibrium of an exchange economy, but
that x does not belong to the core of the corresponding market game. Then there
exists some coalition and allocation
y
() such that y x for every .
>
=1
w for every
=1
and therefore
=1
>
=1
65
Chapter 2: Functions
2.1 In general, the birthday mapping is not one-to-one since two individuals may have
the same birthday. It is not onto since some days may be no ones birthday.
2.2 The origin 0 is xed point for every . Furthermore, when = 0, is an identity
function and every point is a xed point.
2.3 For every , there exists some such that () = , whence 1 ().
Therefore, every belongs to some contour. To show that distinct contours are disjoint,
assume 1 (1 ) 1 (2 ). Then () = 1 and also () = 2 . Since is a
function, this implies that 1 = 2 .
2.4 Assume is one-to-one and onto. Then, for every , there exists such
that () = . That is, 1 () = for every . If is one to one, () = = ( )
implies = . Therefore, 1 () consists of a single element. Therefore, the inverse
function 1 exists.
Conversely, assume that : has an inverse 1 . As 1 is a function mapping
to , it must be dened for every . Therefore is onto. Assume there
exists , and such that () = = ( ). Then 1 () = and
also 1 () = . Since 1 is a function, this implies that = . Therefore is
one-to-one.
2.5 Choose any and let = (). Since is one-to-one, = 1 () = 1 ( ()).
The second identity is proved similarly.
2.6 (2.2) implies for every
= 0 = 1
and therefore
=
For every 0
= 1 +
3
2
+
+
+ > 0
1
2
6
3
2
+
+
+ 1 + as
1
2
6
2 2
( /2 )
1
=
/2 as
2 /2
66
(2.28)
since the term in brackets is strictly greater than 1 for any > 0. Similarly
(/(+1) ) /(+1)
=
( + 1) ( +1
)
( /(+1) )
1
=
/(+1)
( + 1) /( + 1)
2.8 Assume that is compact. Then is bounded (Proposition 1.1), and there
exists such that for every . For all 2
+1
( )
() () =
! ( + 1)!
=+1
=0
+1
( )
( + 1)!
=0
(
( ) )
+1
1
1 1
1 + + + +
( + 1)!
2 4
2
(
( )
)
+1
1
+1
2
2
( + 1)!
+1
2
by Exercise 1.206. Therefore converges to for all .
2.9 This is a special case of Example 2.8. For any , (), dene
( + ) = () + ()
( )() = ()
With these denitions + and also map to . Hence () is closed under
addition and scalar multiplication. It is straightforward but tedious to verify that ()
satises the other requirements of a linear space.
2.10 The zero element in () is the constant function () = 0 for every .
2.11
= sup () + ()
{
}
sup () + ()
sup ( () + sup ()
= +
2. Consequently, for any (), () for every and therefore
(). Similarly, for any , (), ( + )() + for every
67
We need to show
0 and
()
=1
subject to x ()
where is total revenue and =1 total cost. The prot function, which depends
upon both and w, is dened by
(, w) =
max
,x ()
68
=1
x+
=1
2.14
=1
( ) =
= (y, p)
(y, p) =
x solve (2.4).
2.16 The assumption that () = for every implies (0 ) = for every
0 . There always exist feasible plans from any starting point. Since is bounded,
there exists such that ( , +1 ) for every x (0 ). Consequently, for
every x (0 ), (x) and
(x) =
( , +1 )
( , +1 )
=
1
=0
=0
=0
69
sup (x)
x(0 )
( , +1 )
=0
= (0 , 1 ) +
(+1 , +2 )
=0
= (0 , 1 ) + (x )
(2.29)
sup (x)
x(1 )
70
(2.30)
( , +1 ) + 2 (2 )
=0
( , +1 ) + 3 (3 )
=0
( , + 1) + ( )
=0
( , +1 ) = (x )
=0
(2.31)
(, ) + () : ()
= 1, 2, 3
Any two players can allocate the $1 to between themselves, leaving the other player
out. Therefore
({, }) = 1
, , =
The best that the three players can achieve is to allocate the $1 amongst themselves,
so that
( ) = 1
2.20 If the consumers preferences are continuous and strictly convex, she has a unique
optimal choice x for every set of prices p and income in (Example 1.116). Therefore, the demand correspondence is single valued.
2.21 Assume (s ) for every . Then for every player
( , s ) ( , s ) for every
s = (1 , 2 , . . . , ) is a Nash equilibrium. Conversely, assume s = (1 , 2 , . . . , ) is
a Nash equilibrium. Then for every player
( , s ) ( , s ) for every
which implies that
(s ) for every
2.22 For any nonempty compact set , ( ) is nonempty and compact provided
is continuous (Proposition 1.5) and ( ) . Therefore
1 2 3 . . .
is a nested sequence ofnonempty compact sets. By the nested intersection theorem
(Exercise 1.117), = =0 = .
2.23 If s is a Nash equilibrium, for every .
72
for every x ()
Therefore
(x , ) () = sup (x, )
x()
Conversely
() = sup (x, ) sup (x, ) (x , ) for every x ()
x()
x()
Consequently
() = (x , ) for any x ()
2.25 The graph of is
graph( ) = { (, x) + + : x () }
while the production possibility set is
= { (, x) + + : () }
Assume that is convex and let ( , x ) graph( ), = 1, 2. This means that
( 1 , x1 ) and ( 2 , x2 )
Let
= x1 + (1 )x2
= 1 + (1 ) 2 and x
for some 0 1. Since is convex
(
,
x) = ( 1 , x1 ) + (1 )( 2 , x2 )
(
) graph( ). That is graph( ) is convex.
and therefore x
) so that (
, x
Conversely, assuming graph( ) is convex, if ( , x ) , = 1, 2, then ( , x )
graph( ) and therefore
) graph( ) = x
(
(
, x
) = (
,
x)
so that is convex.
2.26 The graph of is
graph() = { (, x) : x () }
Assume that ( , x ) graph(), = 1, 2. This means that x () and therefore
(x, ) for every and = 1, 2. Since is convex
(x1 + (1 )x2 , 1 + (1 ) 2 ) (x1 , 1 ) + (1 )(x2 , 2 )
Therefore x1 +(1)x2 ( 1 +(1)2 ) and ( 1 +(1) 2 , x1 +(1)x2 )
graph(). is convex.
73
2.33 By Exercise 2.31 and Example 2.53, each is strictly increasing on + . That is
1 < 2 = (1 ) < (2 ) for every
(2.32)
and therefore
lim (1 ) lim (2 )
(d) Suppose x z1x and x z2x with z1x = z2x . Then either z1x > z2x or
z1x < z2x . Without loss of generality, assume z2x > z1x . Then monotonicity
and transitivity imply
x z2x z1x x
which is a contradiction. Therefore zx is unique.
Let x denote the scale of zx , that is zx = x 1. For every x + , there is a
unique zx x and the function : + given by (x) = x is well-dened.
Moreover
x2 x1 zx2 zx1
x2 x1
(x2 ) (x1 )
represents the preference order .
2.39
2. The preceding construction associates a rational number with every real number
1 . Hence is a function from to the set of rational numbers . For any
11 , 21 with 21 > 11
(21 ) > (21 , 1) > (11 , 2) > (11 )
Therefore
21 > 11 = (21 ) > (11 )
is strictly increasing.
3. By Exercise 2.29, has an inverse. This implies that is one-to-one and onto,
which is impossible since is countable and is uncountable (Example 2.16).
This contradiction establishes that has no such representation .
2.40 Let a1 , a2 with a1 2 a2 . Since the game is strictly competitive, a2 1 a1 .
Since 1 represents 1 , 1 (a2 ) 1 (a1 ) which implies that 1 (a2 ) 1 (a1 ), that
is 2 (a1 ) 2 (a2 ) where 2 = 1 . Similarly
2 (a1 ) 2 (a2 ) = 1 (a1 ) 1 (a2 ) a1 1 a2 = a1 2 a2
Therefore 2 = 1 represents 2 and
1 (a) + 2 (a) = 0 for every a
2.41 Assume . By superadditivity
( ) () + ( ) ()
2.42 Assume , () with () () for every . Then for any
(, ) + () (, ) + () for every
and therefore
( )() = sup { (, ) + ()} sup { (, ) + ()} = ( )()
()
()
T is increasing.
76
implies
(1 2 ) + (1 2 ) (1 ) + (2 )
for all 0. By Exercise 1.186, the set of all supermodular functions is a convex cone
in ().
2.51 Since is supermodular and is nonnegative denite,
(
)
(1 2 )(1 2 ) (1 ) + (2 ) (1 2 ) (1 2 )
(
)
= (2 )(1 2 ) + (1 ) (1 2 ) (1 2 )
for any 1 , 2 . Since and are increasing, this implies
(
)
(1 2 )(1 2 ) (2 )(1 2 ) + (1 ) (1 2 ) (1 )
(2.33)
78
(2.34)
(2.35)
(2.36)
79
(2.37)
(2 , 2 ) (2 , 1 ) (1 , 2 ) (1 , 1 )
(2.38)
Rearranging
(2.39)
( , p2 ) ( , p1 ) =
(2 1 )
=
If the goods are gross substitutes, demand for rm increases and the amount
of the increase is independent of . Consequently, the eect on prot will be increasing in . That is the payo function (net revenue) has increasing dierences
in ( , p ). Specically,
( , p2 ) ( , p1 ) =
( )(2 1 )
=
(2.40)
2.63 As in the proof of the theorem, let 1 , 2 belong to with 2 1 . Choose any
optimal solutions x1 ( 1 ) and x2 (2 ). We claim that x2 x1 . Assume
otherwise, that is assume x2 x1 . This implies (Exercise 1.44) that x1 x2 = x1 .
Since x1 x1 x2 , we must have x1 x1 x2 . Strictly increasing dierences implies
(x1 , 2 ) (x1 , 1 ) > (x1 x2 , 2 ) (x1 x2 , 1 )
which can be rearranged to give
(x1 , 2 ) (x1 x2 , 2 ) > (x1 , 1 ) (x1 x2 , 1 )
(2.41)
Supermodularity implies
(x1 x2 , 2 ) + (x1 x2 , 2 ) (x1 , 2 ) + (x2 , 2 )
which can be rearranged to give
(x1 x2 , 2 ) (x2 , 2 ) (x1 , 2 ) (x1 x2 , 2 )
Combining this inequality with (2.41) gives
(x1 x2 , 2 ) (x2 , 2 ) > (x1 , 1 ) (x1 x2 , 1 )
(2.42)
However x1 and x2 are optimal for their respective parameter values, that is
(x2 , 2 ) (x1 x2 , 2 ) = (x1 x2 , 2 ) (x2 , 2 ) 0
(x1 , 1 ) (x1 x2 , 1 ) = (x1 , 1 ) (x1 x2 , 1 ) 0
Substituting in (2.42), we conclude
0 (x1 x2 , 2 ) (x2 , 2 ) > (x1 , 1 ) (x1 x2 , 1 ) 0
This contradiction implies that our assumption that x2 x1 is false. x2 x1 as
required. is always increasing.
2.64 The budget correspondence is descending in p and therefore ascending in p.
Consequently, the indirect utility function
(p, ) =
sup
x(p,)
(x)
To show that satises the single crossing condition, choose any x2 x1 and let
= {x1 , x2 }. Assume that (x2 , 1 ) (x1 , 1 ). Then x2 (1 , ) which implies
that x2 ( 2 , ) for any 2 1 . (If x1 ( 2 , ), then also x1 x2 = x2 ( 2 , )
since is increasing in (, ).) But this implies that (x2 , 2 ) (x1 , 2 ). satises
the single crossing condition.
2.66 First, assume that is continuous. Let be an open subset in and = 1 ( ).
If = , it is open. Otherwise, choose 0 and let 0 = (0 ) . Since is
open, there exists a neighborhood (0 ) . Since is continuous, there exists a
corresponding neighborhood (0 ) with ( (0 )) ( (0 )). Since ( (0 )) ,
(0 ) . This establishes that for every 0 there exist a neighborhood (0 )
contained in . That is, is open in .
Conversely, assume that the inverse image of every open set in is open in . Choose
some 0 and let 0 = (0 ). Let be a neighborhood of 0 . contains an
open ball (0 ) about 0 . By hypothesis, the inverse image = 1 ( (0 )) is open
in . Therefore, there exists a neighborhood (0 ) 1 ( (0 )). Since (0 ) ,
( (0 )) . Since the choice of 0 was arbitrary, we conclude that is continuous.
2.67 Assume is continuous. Let be a closed set in and let = 1 ( ). Then,
is open. By the previous exercise, 1 ( ) = is open and therefore is closed.
Conversely, for every open set , is closed. By hypothesis, = 1 ( ) is
closed and therefore = 1 ( ) is open. is continuous by the previous exercise.
2.68 Assume is continuous. Let be a sequence converging to Let be a neighborhood of (). Since is continuous, there exists a neighborhood such that
() . Since converges to , there exists some such that for all
. Consequently ( ) for every . This establishes that ( ) ().
Conversely, assume that for every sequence , ( ) (). We show that if
were not continuous, it would be possible to construct a sequence which violates this
hypothesis. Suppose then that is not continuous. Then there exists a neighborhood
/ . In
of () such that for every neighborhood of , there is with ( )
particular, consider the sequence of open balls 1/ (). For every , choose a point
/ . Then but ( ) does not converge to ().
1/ () with ( )
This contradicts the assumption. We conclude that must be continuous.
2.69 Since is one-to-one and onto, it has an inverse = 1 which maps onto
. Let be an open set in . Since is open, = 1 () = () is open in .
Therefore = 1 is continuous.
2.70 Assume is continuous. Let ( , ) be a sequence of points in graph( ) converging to (, ). Then = ( ) and . Since is continuous, = () =
lim ( ) = lim . Therefore (, ) graph( ) which is therefore closed.
2.71 By the previous exercise, continuous implies graph( ) closed. Conversely, suppose graph( ) is closed and let be a sequence converging to . Then ( , ( )))
is a sequence in graph( ). Since is compact, ( ) contains a subsequence which
converges . Since graph( ) is closed, (, ) graph( ) and therefore = () and
( ) ().
2.72 Let be an open set in . Since and are continuous, 1 ( ) is open in
and 1 ( 1 ( )) is open in . But 1 ( 1 ( )) = ( )1 ( ). Therefore is
continuous.
2.73 Exercises 1.201 and 2.68.
83
=
()
(
)
( ) ( + )
1 ( ()) =
1 () =
2.78 Choose any 0 and > 0. Since is continuous, there exists 1 such that
(, 0 ) < 1 = () (0 ) < /2
Similarly, there exists 2 such that
(, 0 ) < 2 = () (0 ) < /2
Let = min{1 , 2 }. Then, provided (, 0 ) <
( + )() ( + )(0 ) = () + () (0 ) (0 )
() (0 ) + () (0 )
<
This establishes + is continuous at 0 . Since 0 was arbitrary, + is continuous
for every 0 . The continuity of is shown similarly.
2.79 Choose any 0 . Given 0 < 1, there exists > 0 such that
() (0 ) < and () (0 ) <
whenever (, 0 ) < . Consequently, while (, 0 ) <
() () (0 ) + (0 )
< + (0 )
1 + (0 )
and
( )() ( )(0 ) = ()() (0 )(0 )
= ()(() (0 )) + (0 )( () (0 ))
() () (0 ) + (0 ) () (0 )
< (1 + (0 ) + (0 ))
Given > 0, let = min{1, /(1 + (0 ) + (0 ))}. Then, we have shown that there
exists > 0 such that
(, 0 ) < = ( )() ( )(0 ) <
Therefore, is continuous at 0 .
2.80 Apply Exercises 2.78 and 2.72.
2.81 For any , the upper and lower contour sets of , namely
{ : max{ (), ()} } = { : () } { : () }
{ : max{ (), ()} } = { : () } { : () }
are closed. Therefore is continuous (Exercise 2.77). Similarly for .
2.82 The set = () is compact (Proposition 2.3). We want to show that has
both largest and smallest elements. Assume otherwise, that is assume that has
no largest element. Then, the set of intervals {(, ) : } forms an open
covering of . Since is compact, there exists a nite subcollection of intervals
{(, 1 ), (, 2 ), . . . , (, )} which covers . Let be the largest of these .
Then does not belong to any of the intervals {(, 1 ), (, 2 ), . . . , (, )},
contrary to the fact that they cover . This contradiction shows that, contrary to our
assumption, there must exist a largest element , that is for all .
Let 1 ( ). Then = ( ) () for all . The existence of a smallest
element is proved analogously.
85
2.85 Let ()
denote the set of all continuous (not necessarily bounded) functionals
on . Then
() = () ()
(), ()
are a linear subspaces of the set of all functionals () (Exercises 2.11,
(2.43)
(2.44)
= <
2
2
is uniformly continuous.
2.93 Let , ().F Since () is a normed linear space, for every
() () = ( )()
which implies that
() () +
Since is increasing and satises (2.21)
( ) ( + ) = () +
or
( ) ()
That is, for every
( )()
and consequently
is a contraction with modulus .
87
2.94 We have previously shown that is increasing (Exercise 2.42). By direct calculation, for any constant ,
{
(
)}
(, ) + () +
( + )() = sup
()
= sup
()
(, ) + ()
= ()() +
2.95 Assume that is a compact subset of (). Then is bounded (Proposition
1.1). To show that is equicontinuous, choose > 0. is totally bounded (Exercise
1.113), so that there exist nite set of functions {1 , 2 , . . . , } in F such that
min /3
=1
Each is uniformly continuous (Exercise 2.91), so that there exists > 0 such that
(, 0 ) = ( (), (0 ) < /3
Let = min{1 , 2 , . . . , }. Given any , let be such that < /3. Then
for any , 0 , (, 0 ) implies
( (), (0 ) ( (), ()) + ( (), (0 )) + ( (0 ), (0 )) <
+ + =
3 3 3
< + + =
3 3 3
That is, < for every , in the subsequence.
2. Choose a ball 1 of radius 1 in () which contains innitely many elements of
( ). Applying step 1, there exists a ball 2 of radius 1/2 containing innitely
many elements of ( ). Proceeding in this fashion, we obtain a nested sequence
1 2 . . . of balls in () such that (a) ( ) 0 and (b) each contains
innitely many terms of ( ). Choosing gives a convergent subsequence.
88
2.96 Let . Then for every > 0 there exists > 0 and such that
< /3 and
(, 0 ) = ( (), (0 ) < /3
so that if (, 0 )
() (0 ) () () + () (0 ) + (0 ) (0 ) <
+ + =
3 3 3
(
)
+ ( ) = ( )
1
2
{1 }
{2 }
+
2
{1 }
{2 }
{1 , 2 }
2
{1 }
{1 , 2 }
{1 , 2 }
{1 , 2 }
{1 , 2 }
2.100 Let be an open interval meeting (1), that is (1) = . Since (1) = {1},
we must have 1 and therefore () = for every . Therefore is lhc at
= 1. On the other hand, the open interval = (1/2, 3/2) contains (1) but it does
not contain () for any > 1. Therefore, is not uhc at = 1.
2.101 Choose any open set and . Since () = = ( ) for every
,
() if and only if ( ) for every ,
() = if and only if ( ) = for every , .
Consequently, is both uhc and lhc at all .
2.102 First assume that the is uhc. Let be any open subset in and = + ( ).
If = , it is open. Otherwise, choose 0 so that (0 ) . Since is uhc,
there exists a neighborhood (0 ) such that () for every (0 ). That is,
(0 ) + ( ) = . This establishes that for every 0 there exist a neighborhood
(0 ) contained in . That is, is open in .
Conversely, assume that the upper inverse of every open set in is open in . Choose
some 0 and let be an open set containing (0 ). Let = + ( ). is an open
set containing 0 . That is, is a neighborhood of 0 with () for every .
Since the choice of 0 was arbitrary, we conclude that is uhc.
The lhc case is analogous.
89
( )
=1
(0 ) (0 )
=1
2.109
1. Let x (p, ) . Then x (p, ) and =1 . Since is
= x and
open, there exists < 1 such that x
=1
<
=1
91
=1
2. (a) Suppose that (p, ) is not lhc. Then for every neighborhood of (p, ),
there exists (p , ) such that (p , ) = . In particular, for
every open ball (p, ), there exists a point (p , ) (p, ) such
that (p , ) = . ((p , )) is the required sequence.
(b) By construction, p p < 1/ 0 which implies that for every
. Therefore (Exercise 1.202)
< and
and therefore there exists such that
<
which implies that
(p , )
x
(c) Also by construction (p , ) = which implies (p , )
and therefore
(p , ) = x
x
/
The assumption that (p, ) is not lhc at (p, ) implies that x
/ , contra .
dicting the conclusion in part 1 that x
3. This contradiction establishes that (p, ) is lhc at (p, ). Since the choice of
(p, ) was arbitrary, we conclude that the budget correspondence (p, ) is lhc
for all (p, ) (assuming = + ).
4. In the previous example (Example 2.89), we have shown that (p, ) is uhc.
Hence,
the budget correspondence is continuous for all (p, ) such that >
inf x =1 .
2.110 We give two alternative proofs.
Proof 1 Let = {} be an open cover of (). For every , () () is
compact and hence can be covered by a nite number of the sets . Let
denote the union of the nite cover of (). Since is uhc, every + ( )
is open in . Therefore { + ( ) : } is an open covering of . If is
compact, it contains an nite covering { + (1 ), + (2 ), . . . , + ( ) }. The
sets 1 , 2 , . . . , are a nite subcovering of ().
Proof 2 Let ( ) be a sequence in (). We have to show that ( ) has a convergent
subsequence with a limit in (). For every , there is an with
( ). Since is compact, the sequence ( ) has a convergent subsequence
. Since is uhc, the sequence ( ) has a subsequence ( ) which
converges to () (). Hence the original sequence ( ) has a convergent
subsequence.
2.111 The sets , (), 2 (), . . . form a sequence of nonempty compact sets. Since
() , 2 () () and so on, the sequence of sets is decreasing. Let
=
()
=1
()
satisfying the requirements of the continuous maximum theorem (Theorem 2.3), which
ensures that is continuous on . We have previously shown that is bounded
(Exercise 2.18). Therefore ().
2.114
2. Let = inf{ }
.
(a) Since for every , = inf{ } inf{} =
(b) Since (
) is a complete sublattice of , = inf{ } (
).
3. Therefore,
.
4. Since and is increasing, there exists some (
) such that
(
)
Hence .
93
= (
)
is a xed point of .
6. Since , = inf is the least xed point of .
2.116
(0 , 1 )
1
(0 , 1 )
1
(1 )
(1 , )
1
(1 , )
1
2( )
Since
1
1
1 for all ,
so that
() ()
1
1
() () () ()
1
=
2
or
() ()
is a contraction on with modulus 1/2.
95
1
2
is closed and hence complete (Exercise 1.107). Therefore, has a xed point. That
is, there exists 0 such that
0 = (0 ) =
1
2
(0 + )
2
0
Rearranging
so that 0 =
220 = 20 + 2 = 20 = 2
2.
Letting 0 = 2
1 =
3
1
(2 + 1) =
2
2
( , 2)
(0 , 1 )
1
(1/2)
=
1/2
1/2
1
=
2
1
< 0.001
=
1024
when = 10. Therefore, we conclude that 10 iterations are ample to reduce the
error below 0.001. Actually, with experience, we can rene this a priori estimate. In
Example 1.64, we calculated the rst ve terms of the sequence to be
(2, 1.5, 1.416666666666667, 1.41421568627451, 1.41421356237469)
We observe that
(3 , 4 ) = 1.41421568627451 1.41421356237469) = 0.0000212389982
so that using the second inequality of Corollary 2.5.1
(4 ,
2)
1/2
0.0000212389982 < 0.001
1/2
2.123 By the Banach xed point theorem, for every , there exists such
that ( ) = . Choose any 0 .
( , 0 ) = ( ( ), 0 (0 ))
( ( ), (0 )) + ( (0 ), 0 (0 ))
( , 0 ) + ( (0 ), 0 (0 ))
(1 )( , 0 ) ( (0 ), 0 (0 ))
( , 0 )
( (0 ), 0 (0 ))
0
(1 )
as 0 . Therefore 0 .
2.124
2. For any x1 , x2
(x1 ) (x2 ) = ( )(x1 x2 )
x1 x2
Since = 1, the norm of is
= max
and
(x1 ) (x2 ) x1 x2
By the assumption of strict diagonal dominance, < 1. Therefore is a contraction and has a unique xed point x.
2.125
1.
() = { () : (, ) + ( ) = () }
= { () : (, ) + ( ) = sup { (, ) + ()}}
()
2. () is the solution correspondence of a standard constrained maximization problem, with as parameter and the decision variable. By assumption the maximand (, ) = (, ) + () is continuous and the constraint correspondence
() is continuous and compact-valued. Applying the continuous maximum theorem (Theorem 2.3), is nonempty, compact-valued and uhc.
3. We have just shown that () is nonempty for every . Starting at 0 ,
choose some 1 (0 ). Then choose 2 (1 ). Proceeding in this way,
we can construct a plan x = 0 , 1 , 2 , . . . such that +1 ( ) for every
= 0, 1, 2, . . . .
97
= 0, 1, 2, . . .
1. In the previous exercise (Exercise 2.125) we showed that the set of solutions to Bellmans equation (Exercise 2.17) is the solution correspondence of the
constrained maximization problem
() = arg max { (, ) + () }
()
This problem satises the requirements of the monotone maximum theorem (Theorem 2.1), since the objective function (, ) + ()
supermodular in
displays strictly increasing dierences in (, ) since for every 2 1
(2 , ) + () (1 , ) + () = (2 , ) (1 , )
() is increasing.
By Corollary 2.1.2, () is always increasing.
2. Let x = (0 , 1 , 2 , . . . ) be an optimal plan. Then (Exercise 2.17)
+1 ( ),
= 0, 1, 2, . . .
>
=0
= 1
=0
=0
98
1 + 2 + 4 = 1
1. () = 2 on = (0, 1) or () = + 1 on = + .
{
() =
1
0
0 < 1/2
otherwise
2.132 Suppose such a function exists. Dene (x) = (x). Then : continously, and has no xed point since for
x , (x) = (x) = x = x
x , (x)
/ and therefore (x) = x
Therefore has no xed point contradicting Brouwers theorem.
2.133 Suppose to the contrary that has no xed point. For every x , let (z)
denote the point where the line segment from (x) through x intersects the boundary
of . Since is continuous and (x) = x, is a continuous function from to its
boundary, that is a retraction, contradicting Exercise 2.132. We conclude that must
have a xed point.
2.134 No-retraction = Brouwer Note rst that the no-retraction theorem (Exercise 2.132) generalizes immediately to a closed ball about 0 of arbitrary radius.
Assume that is a continuous operator on a compact, convex set in a nite dimensional normed linear space. There exists a closed ball containing
(Proposition 1.1). Dene : by
(y) = { x : x is closest to y }
As in Exercise 2.129, is well-dened, continuous and (x) = x for every x .
: and has a xed point x = ((x )) by Exercise 2.133. Since
99
= 0, 1, . . . ,
lim x = x ,
= 0, 1, . . . ,
=0
2.136
= 1 =
=0
conv { x : }
= with ,
= 0, 1, . . . ,
=0
where
and
are the barycentric coordinates of x and (x ) respectively.
Since
= = 1, this implies that
=
= 0, 1, . . . ,
In other words, (x ) = x .
100
conv { x : }
+ (x)
1 + =0 (x)
= 0, 1, . . . ,
(2.45)
1+
=0
(x )
which implies that (x ) = 0 for every . Since the are closed, x for
every and therefore
x
=0
(
)
2.137 To simplify the notation, let + (p) = max 0, z (p) . Assume p is a xed point
of . Then for every = 1, 2, . . . ,
=
+ + (p )
1 + =1 + (p )
Cross-multiplying
+
=1
+ (p) = + + (p )
or
=1
+ (p) = + (p )
= 1, 2, . . .
=1
+ (p) = (p )+ (p )
101
= 1, 2, . . .
Since
=1
(p )
=1
=1
+ (p) =
=1
(p )+ (p )
=1
(p )+ (p ) = 0
(
)2
Each term of this sum is nonnegative, since it is either 0 or (p ) . Consequently,
every term must be zero which implies that (p) 0 for every = 1, 2, . . . , . In
other words, z(p ) 0.
2.138 Every individual demand function x (p, ) is continuous (Example 2.90) in p
and . For given endowment
=
=1
=1
z (p)
(
)
x (p, )
=1
and therefore
p z(p) =
p x (p, )
=1
=1
Since preferences are nonsatiated and strictly convex, they are locally nonsatiated
(Exercise 1.248) which implies (Exercise 1.235) that every consumer must satisfy his
budget constraint
p x (p, ) = p for every = 1, 2, . . . ,
Therefore in aggregate
p z(p) =
p x (p, )
=1
=1
for every p.
102
p = 0
z (p) =
=1
(
)
x (p, ) =
x (p, )
0
=1
or
=1
=1
y y and
= 0, 1, . . . ,
(2.46)
103
2.142 Analogous to Exercise 2.129, there exists a simplex containing and a retraction of onto , that is a continuous function : with (x) = x for every x .
Then : is closed-valued (Exercise 2.106) and uhc (Exercise 2.103).
By the argument in the proof, there exists a point x such that x (x ).
However, since (x ) , we must have x and therefore (x ) = x . This
implies x (x ). That is, x is a xed point of .
2.143 = 1 2 . . . is the Cartesian product of uhc, compact- and convexvalued correspondences. Therefore is also compact-valued and uhc (Exercise 2.112
and also convex-valued (Exercise 1.165). By Exercise 2.106, is closed.
2.144 Strict quasiconcavity ensures that the best response correspondence is in fact a
function : . Since the hypotheses of Example 2.96 apply, there exists at least
one equilibrium. Suppose that there are two Nash equilibria s and s . Since is a
contraction,
((s), (s ) (s, s )
for some < 1. However
(s) = s and (s ) = s
and (2.46) implies that
(s, s ) (s, s )
which is possible if and only if s = s . This implies that the equilibrium must be unique.
2.145 Since is compact, it is totally bounded (Exercise 1.112). There exists a nite
set of points x1 , x2 , . . . , x such that
(x )
=1
= 1, 2, . . . ,
and
(x) > 0 x (x )
Note that (x) > 0 for some . Dene
(x)x
(x) =
(x)
x
(x) x =
(x)
(x)(x x)
=
(x)
(x) x x
=
(x)
(x)
=
(x)
since (x) > 0 x x .
104
(
)
1. For every x , (x) and therefore (x) = (x) .
which implies
(x) (x) 1 for every x
105
(
)(
)
0 1
1
(1 , 2 ) =
1 0
2
= (2 , 1 )
This function interchanges the two coordinates of any point in the plane 2 . Its action
corresponds to reection about the line 1 = 2 ( 45 degree diagonal).
3.6 Assume (, ) and (, ) are two games in . For any coalition
( + )() ( + )( {}) = () + ( ) ( {}) ( {})
= (() ( {})) + ( () ( {}))
= () + ( )
107
(, ) = 210
(, ) = 770
( ) = 0
(, ) = 1170
( ) = 1530
The following table details the computation of the Shapley value for player .
,
,
, ,
()
1/3
1/6
1/6
1/3
()
0
210
770
1530
( {})
0
0
0
1170
(() ( {}))
0
35
128 1/3
120
283 1/3
Thus = 283 1/3. Similarly, we can calculate that = 483 1/3 and =
763 1/3.
3.8
)
(() ( {}))
)
(() ( {}))
()
( {})
()
()
)
( {})
()
= ( )
= ( )
3.9 If ,
( {}) = ( {, } {}) = ( {, } {}) = ( {})
() =
(() ( {}))
(() ( {})) +
(() ( {})) +
(( {}) ())
(() ( {})) +
(( {}) ( ))
(() ( {}))
(() ( {})) +
= ()
108
(() ( {}))
() =
(() ( {})) = 0
3.11 Every
/ is a null player, so that
( ) = 0
Feasibility requires that
for every
/
( ) =
( ) = 1
Further, any two players in are substitutes, so that symmetry requires that
( ) = ( )
for every ,
for every
( ) =
0
/
where = .
3.12 Any coalitional game can be represented as a linear combination of unanimity
games (Example 1.75)
=
=
1
1
= (, ) ( {}, )
109
)
(, ) ( {}, )
= (, )
( {}, )
(
( )
)
( {}, )
111
If x kernel () then
(x) = ( (x)) = 0
and (x) kernel = {0 }. Therefore (x) = 0 which implies that x = 0 .
Thus kernel = {0 }.
We conclude that is nonsingular.
Finally, let z be any point in and let
x1 = 1 (z) = ( )1 (z)
y = 1 (z)
x2 = 1 (y)
Then
z = (x1 ) = (x1 )
z = (y) = (x2 )
which implies that x1 = x2 .
3.22 Suppose were one-to-one. Then kernel = {0} kernel and = 1 is a
well-dened linear function mapping () to with
(
)
= 1 =
We need to show that this still holds if is not one-to-one. In this case, for arbitrary
y (), 1 (y) may contain more than one element. Suppose x1 and x2 are distinct
elements in 1 (y). Then
(x1 x2 ) = (x1 ) (x2 ) = y y = 0
so that x1 x2 kernel kernel (by assumption). Therefore
(x1 ) (x2 ) = (x1 x2 ) = 0
which implies that (x1 ) = (x2 ) for all x1 , x2 1 (y). Thus = 1 : ()
is well dened even if is many-to-one.
To show that is linear, choose y1 , y2 in () and let
x1 1 (y1 )
x2 1 (y2 )
Since (x1 + x2 ) = (x1 ) + (x2 ) = y1 + y2
x1 + x2 1 (y1 + y2 )
and
(y1 + y2 ) = (x1 + x2 )
Therefore
(y1 ) + (y2 ) = (x1 ) + (x2 )
= (x1 + x2 )
= (y1 + y2 )
112
=1
y = (x)
)
(
x
=
=
(x )
(x ) = 0
=+1
=0
=+1
or
x=
kernel
=+1
113
=1
or
x=
x =
=1
=+1
=1
y = (x) =
e =
=1
x (e )
=1
=1
so that
y = (x)
=
=1
=1
)
e
=1
e
=1
1
=1
=1 2
..
=1
= x
where
11 12 . . . 1
21 22 . . . 2
=
. . . . . . . . . . . . . . . . . . . . .
1 2 . . .
114
(
1 0
0 1
)
0
0
3.28 We must specify bases for each space. The most convenient basis for is the
T-unanimity games. We adopt the standard basis for . With respect to these bases,
the Shapley value is represented by the 21 matrix where each row is the Shapley
value of the corresponding T-unanimity game.
For three player games ( = 3), the matrix is
1 0
0 1
0 0
1 1
21 2
2 01
0
2
1
3
1
3
0
0
1
2
1
2
1
3
x
x
=1
115
(x )
=1
(x) =
=1
(x )
(x )
=1
)
(
max (x )
=1
=1
1
1
x = x
=1
=1
Combining these two inequalities
(x) x
where = max=1 (x ) /.
3.32 For any x , let = x and dene y = x/. Linearity implies that
(x)
= sup (x/) = sup (y)
x=0
x=0
y=1
= sup
x=1
x=1
Thus, is bounded.
To complete the proof, we must show , that is 0. Since ( )
is a Cauchy sequence, for every > 0, there exists such that
for every , and consequently
(x) (x) = ( )(x) x
Letting go to innity,
(x) (x) = ( )(x) x
for every x and and therefore
= sup { )(x)}
x=1
for every .
3.34
( + )x =
=1
x +
=1
x = () + ()
=1
x = ()
=1
1
y
118
3.37 For any function, continuity implies closed graph (Exercise 2.70). To show the converse, assume that = graph( ) is closed. with norm (x, y) = max{x , y}
is a Banach space (Exercise 1.209). Since is closed, is complete. Also, is a subspace of . Consequently, is a Banach space in its own right.
Consider the projection : dened by (x, (x)) = x. Clearly is linear,
one-to-one and onto with
1 (x) = (x, (x))
It is also bounded since
(x, (x)) = x (x, (x)
By the open mapping theorem, 1 is bounded. For every x
(x) (x, (x)) = 1 (x) 1 x
We conclude that is bounded and hence continuous.
3.38 (1) = 5, (2) = 7 but
(1 + 2) = (3) = 9 = (1) + (2)
Similarly
(3 2) = (6) = 15 = 3 (2)
3.39 Assume is ane. Let y = (0) and dene
(x) = (x) y
is homogeneous since for every
(x) = (x + (1 )0)
= (x + (1 )0) y
= (x) + (1 ) (0) y
= (x) + (1 )y y
= (x) y
= ( () y)
= (x)
Similarly for any x1 , x2
(x1 + (1 )x2 ) = (x1 + (1 )x2 )
= (x1 ) + (1 ) (x2 )
Therefore, for = 1/2
1
1
1
1
( x1 + x2 ) = (x1 ) + (x2 )
2
2
2
2
1
1
= ( (x1 ) ) + ( (x2 ) )
2
2
1
1
= (x1 ) + (x2 )
2
2
119
Since is homogeneous
(x1 + x2 ) = (x1 ) + (x2 )
which shows that is additive and hence linear.
Conversely if
(x) = (x) + y
with linear
(x1 + (1 )x2 ) = (x1 ) + (1 )(x2 ) +
= (x1 ) + + (1 )(x2 ) +
= (x1 ) + (1 ) (x2 )
3.40 Let be an ane subset of and let y1 , y2 belong to (). Choose any x1
1 (y1 ) and x2 1 (y2 ). Then for any
x1 + (1 )x2
Since is ane
y1 + (1 )y2 = (x1 ) + (1 ) (x2 ) = (x1 + (1 )x2 ) ()
() is an ane set.
Let be an ane subset of and let x1 , x2 belong to 1 ( ). Let y1 = (x1 ) and
y2 = (x2 ). Then y1 , y2 . For every
y1 + (1 )y2 = (x1 ) + (1 ) (x2 )
Since is ane, this implies that
(x1 + (1 )x2 ) = (x1 ) + (1 ) (x2 )
Therefore
x1 + (1 )x2 1 ( )
We conclude that 1 ( ) is an ane set.
3.41 For any y1 , y2 (), choose x1 , x2 such that y = (x ). Since is convex,
x1 + (1 )x2 and therefore
(x1 + (1 )x2 ) = (x1 ) + (1 ) (x2 )
= y1 + (1 )y2 ()
Therefore () is convex.
3.42 Suppose otherwise that y is not ecient. Then there exists another production
plan y such that y y. Since p > 0, this implies that py > py, contradicting
the assumption that y maximizes prot.
3.43 The random variable can be represented as the sum
(){}
=
120
()({} )
()
= 1
(1) =
(y) =
(x ) + (y ) >
(x ) = (x )
(x ) = (
x ) =
( )
(x ) = (
x ) = (x) for every x
x = x1 + x2 + + x maximizes over .
3.46
=1
=1
Then ( ) is a bounded monotone sequence in which converges to . Consequently, ( ) is a Cauchy sequence. For every > 0 there exists an such
that
+
<
121
1
= 1 + 1 + 1+ =
2 3
=1
(1/)
/ 1 .
Every convergent sequence is bounded (Exercise 1.97). Therefore 0 .
2. Clearly, every sequence ( ) 1 denes a linear functional 0 given by
(x) =
=1
=1
( )
=1
= ( )1 ( )
Therefore 0 .
To show the converse, let e denote the unit sequences
e1 = (1, 0, 0, . . . )
e2 = (0, 1, 0, . . . )
e3 = (0, 0, 1, . . . )
{e1 , e2 , e3 , . . . , } form a basis for 0 . Then every sequence ( ) 0 has a unique
representation
( ) =
=1
(e )
=1
Let
= (e )
so that
(x) =
=1
We need to show that the sequence ( ) 1 . For any , consider the sequence
x = (1 , 2 , . . . , , 0, 0, . . . ) where
0
= 0 or
=
otherwise
Then (x ) 0 , x = 1 and
(x ) =
=1
=1
=1
Consequently
= sup
=1
=1
<
=1
( )
=1
<
=1
=1
= and = 0
0
otherwise
Then x 1 , x 1 = 1 and
(x ) =
Since
1 ,
kernel kernel
=1
=
kernel
=1
kernel
: and : . By Exercise 3.22, there exists a linear function :
such that = . That is, for every
(x) = (x) = (1 (x), 2 (x), . . . , (x))
Let = (e ) where e is the -th unit vector in . Since every linear mapping is
determined by its action on a basis, we must have
(x) = 1 1 (x) + 2 2 (x) + + (x)
for every
That is
lin 1 , 2 , . . . ,
Conversely, suppose
lin 1 , 2 , . . . ,
That is
(x) = 1 1 (x) + 2 2 (x) + + (x)
for every
kernel kernel
=1
124
3.49 Let be a hyperplane in . Then there exists a unique subspace such that
= x0 + for some x0 (Exercise 1.153). There are two cases to consider.
Case 1: x0
/ . For every x , there exists unique x such
x = x x0 + for some
Dene (x) = x . Then : . It is straightforward to show that is linear.
Since = x0 + , x = 1 if and only if x . Therefore
= { x : (x) = 1 }
Case 2: x0 . In this case, choose some x1
/ . Again, for every x , there
exists a unique x such
x = x x1 + for some
and (x) = x is a linear functional on . Furthermore x0 implies =
(Exercise 1.153) and therefore (x) = 0 if and only if x . Therefore
= { x : (x) = 0 }
Conversely, let be a nonzero linear functional in . Let = kernel and choose
x0 1 (1). (This is why we require = 0). For any x
(x (x)x0 ) = (x) (x) 1 = 0
so that x (x)x0 . That is, x = (x)x0 + for some . Therefore,
= lin (x0 , ) so that is a maximal proper subspace.
For any , let x1 1 (). Then, for every x 1 (), (x x1 ) = 0 and
{ x : (x) = } = {x : (x x1 ) = 0 } = x1 +
which is a hyperplane.
3.50 By the previous exercise, there exists a linear functional such that
= { : () = }
for some . Since 0
/ , = 0. Without loss of generality, we can assume that
= 1. (Otherwise, take the linear functional 1 ).
To show that is unique, assume that is another linear functional with
= { x : () = 1} = {x : () = 1 }
Then
{ x : () () = 0 }
Since is a maximal subset, is the smallest subspace containing . Therefore
() = () for every .
125
126
( + )
=1 =1
=1 =1
=1 =1
= (x, y) + (x , y)
Similarly, we can show that
(x, y + y ) = (x, y) + (x, y )
and
(x, y) = (x, y) = (x, y) for every
3.55 Let x1 , x2 , . . . , x be a basis for and y1 , y2 , . . . , y be a basis for . Let the
numbers represent the action of on these bases, that is
= (x , y )
= 1, 2, . . . , , = 1, 2, . . . ,
x and y =
=1
=1
(x, y) = (
x ,
y )
=
(x ,
y )
(x , y )
= x y
3.56 Every y is a linear functional on . Hence
y(x + x ) = y(x) + y(x )
y(x) = y(x)
and therefore
(x + x , y) = y(x + x ) = y(x) + y(x ) = (x, y) + (x , y)
(x, y) = y(x) = y(x) = (x, y)
127
128
(3.38)
(x, y)2
0
(y, y)
which implies
(
)2
(x, y) (x, x) (y, y) for every x, y
129
3.60 A Euclidean space is a nite-dimensional normed space, which is complete (Proposition 1.4).
3.61 (x, y) = x y satises the requirements of Exercise 3.59 and therefore
(x y)2 (x x)(y y)
Taking square roots
x y x y
3.62 By denition, the inner product is a bilinear functional. To show that it is continuous, let be an inner product space with inner product denote by x y. Let x x
and y y be sequences in .
(x ) y x y = (x ) y (x ) y + (x ) y x y
(x ) y (x ) y + (x ) y x y
(x ) (y y) + (x x) y
Applying the Cauchy-Schwartz inequality
(x ) y x y x y y + x x y
Since the sequence x converges, it is bounded, that is there exists such that x
for every . Therefore
(x ) y x y x y y + x x y y y + x x y 0
3.63 Applying the properties of the inner product
x = x x 0
x = x x = 0 if and only if x = 0
x = (x) (x) = 2 x x = x
To prove the triangle inequality, observe that bilinearity and symmetry imply
2
x + y = (x + y) (x + y)
= x x + x y + y x + z z
= x x + 2x y + y y
2
= x + 2x y + y
x2 + 2 x y + y2
Applying the Cauchy-Schwartz inequality
2
x + y x + 2 x y + y
= (x + y)2
3.64 For every y , the partial function y (x) = x y is a linear functional on
(since x y is bilinear). Continuity follows from the Cauchy-Schwartz inequality, since
for every x
y (x) = x y y x
130
(
)
y
y
y
(
y )
=
y
y
=
1
y y = y
y
3.65 By the Weierstrass Theorem (Theorem 2.2), the continuous function (x) = x
attains a maximum on the compact set at some point x0 .
We claim that x0 is an extreme point. Suppose not. Then, there exist x1 , x2 such
that
x0 = x1 + (1 )x2 = x2 + (x1 x2 )
Since x0 maximizes x on
(
) (
)
2
2
x2 + (x1 x2 )
x2 x0 = x2 + (x1 x2 )
2
= x2 + 2x2 (x1 x2 ) + 2 x1 x2
or
2
2x2 (x1 x2 ) + x1 x2 0
(3.39)
2x1 (x2 x1 ) + x2 x1 0
or
2x1 (x1 x2 ) + x1 x2 2 0
(3.40)
2(x2 x1 ) (x1 x2 ) + 2 x1 x2 0
or
2(x2 x1 ) (x2 x1 ) = 2(x2 x1 ) (x1 x2 ) 2 x1 x2 2
and therefore
x2 x1 x2 x1
Since 0 < < 1, this implies that x1 x2 = 0 or x1 = x2 which contradicts our
premise that x0 is not an extreme point.
3.66 Using bilinearity and symmetry of the inner product
x + y2 + x y2 = (x + y) (x + y) + (x y) (x y)
= x x + x y + y x + y y +
x x x y y x + y y
= 2x x + 2y y
2
= 2 x + 2 y
131
(
)
() + () = sup (1 + ) = 2
= sup
(
)
() () = sup (1 ) = 1
01
01
01
01
so that
2
+ + = 5 = 2 + 2
Since and do not satisfy the parallelogram law (Exercise 3.66), () cannot be an
inner product space.
3.68 Let {x1 , x2 , . . . , x } be a set of pairwise orthogonal vectors. Assume
0 = x1 + 2 x2 + + x
Using bilinearity, this implies
0 = 0 x =
x x = x
=1
=1
x (x ) = x
x =
x x
=1
=1
1
0
if =
otherwise
x + y = (x + y) (x + y) = x + x y + y x + y
If x y, x y = y x = 0 and
2
x + y = x + y
3.72
x0 x1 = x0 y + y x1
2
2
2
= 2 x0 y + 2 x1 y (x0 y) (y x1 )
2
2
2
2 1
= 2 x0 y + 2 x1 y 2 (x0 + x1 ) y
2
2
1
= 2 2 + 2 2 22
2 (x0 + x1 ) y
since 12 (x0 + x1 ) and therefore 12 (x0 + x1 ) y so that
2
x0 x1 2 2 + 2 2 4 2 = 0
which implies that x1 = x0 .
3. Let x . Since is convex, the line segment x+(1)x0 = x0 +(xx0 )
and therefore (since x0 is the closest point)
(
2
)
x0 y2 x0 + (x x0 ) y
2
= (x0 y) + (x x0 )
(
) (
)
= (x0 y) + (x x0 )
(x0 y) + (x x0 )
2
= x0 y + 2(x0 y) (x x0 ) + 2 x x0
133
2(x0 y) (x x0 ) + 2 x x0 0
Dividing through by
2
2(x0 y) (x x0 ) + x x0 0
which inequality must hold for every 0 < < 1. Letting 0, we must have
(x0 y) (x x0 ) 0
as required.
3.73
x x = (x y) + (y x )
= 2 x y + 2 y x 2 x + x
x x = 2 x y + 2 y x 42
Since x y and x y as , , we conclude that
2
x x 0. That is, (x ) is a Cauchy sequence.
2. Since is a closed subspace of complete space, there exists x0 such that
x x0 . By continuity of the norm
x0 y = lim x y =
Therefore
x0 y x y for every x
Uniqueness follows in the same manner as the nite-dimensional case.
3.74 Dene : by
(y) = { x : x is closest to y }
The function is well-dened since for every y there exists a unique point x
which is closest to y (Exercise 3.72). Clearly, for every x , x is the closest point to
x. Therefore (x) = x for every x .
To show that is continuous, choose any y1 and y2 in
x1 = (y1 ) and x2 = (y2 )
134
= y1 y2 + x1 x2 2(y1 y2 ) (x1 x2 )
2
2 x1 x2 + 2(x1 x2 ) (x1 x2 )
2
= y1 y2 x1 x2
(
)
+ 2 (x1 x2 ) (y1 y2 ) (x1 x2 )
= y1 y2 2 x1 x2 2
+ 2(x1 y1 ) (x1 x2 ) 2(x2 y2 ) (x1 x2 )
2
= y1 y2 x1 x2
y1 y2 x1 x2 = (y1 y2 ) (x1 x2 )
(
)
(x) = (x)z (z)x = (x) (z) (z) (x) = 0
135
(
)
(x)z (z)x z = (x)z z (z)x z = 0
since z . Therefore
(x) =
(z)
z
2x z
= x
z (z)
z
)
= x y
where
y=
z (z)
z
(1)+ ( + ) det( )
=1
(1)+ det( ) +
=1
(1)+ det( )
=1
= 1, 2, . . .
so that
det() =
(1)+ det( ) +
=1
(1)+ det( )
=1
= det() + det()
3.82 Suppose that x1 and x2 are eigenvectors corresponding to the eigenvalue . By
linearity
(x1 + x2 ) = (x1 ) + (x2 ) = x1 + x2 = (x1 + x2 )
and
(x1 ) = (x1 ) = x
Therefore x1 + x2 and x1 are also eigenvectors.
137
3.83 Suppose is singular. Then there exists x = 0 such that (x) = 0. Therefore x
is an eigenvector with eigenvalue 0. Conversely, if 0 is an eigenvalue
(x) = 0x = 0
for any x = 0. Therefore is singular.
3.84 Since (x) = x
(x) x = x x = x x
3.85 By Exercise 3.69
= x (x )
= x (x ) = (x ) x
and therefore
= x (x ) = (x ) x
3.86 By bilinearity
x1 (x2 ) = x1 2 x2 = 2 x1 x2
(x1 ) x2 = 1 x1 x2 = 1 x1 x2
Since is symmetric, this implies
(1 2 )x1 x2 = 0
and 1 = 2 implies x1 x2 = 0.
3.87
2. For any x
(
)
(x, x) = x (x) x
= x x (x) x
= x2 (x) x
(
2
= x x
) (
2
x
)
2(
= x (z) z 0
since z = x/ x .
138
x
x
)
2
3. Since is symmetric
(
)
(y, x) = y (y) x
= y x (y) x
= x y (x)
(
)
= x (x) y = (x, y)
4. satises the conditions of Exercise 3.59 and therefore
((x, y))2 (x, x)(y, y) for every x, y
(3.41)
1. Suppose x2 , x3 . Then
(
)
x2 + x3 x1 = x2 x1 + x3 x1 = 0
so that x2 + x3 . is a subspace.
Let {x1 , x2 , . . . , x } be a basis for (Exercise 1.142). For x , there exists
(Exercise 1.137) unique 1 , 2 , . . . , such that
x = 1 x1 + 2 x2 + + x
If x
x x1 = 1 x1 x1 = 0
which implies that 1 = 0.
dim = 1.
2. For every x ,
(x) x0 = x (x0 ) = x x0 = x x0 = 0
since is symmetric. Therefore (x) {x0 } = .
3.89 Let be a symmetric operator. By the spectral theorem (Proposition 3.6), there
exists a diagonal matrix which represents . The elements of are the eigenvalues of
. By Proposition 3.5, the determinant of is the product of these diagonal elements.
139
(x )
(
)
(x) = x (x) =
x
(x ) =
x (x ) =
by Exercise 3.69.
3.91 Let be the symmetric linear operator dening
(x) = x (x)
By the spectral theorem (Proposition 3.6), there exists an orthonormal basis x1 , x2 , . . . , x
comprising the eigenvectors of . Let 1 , 2 , . . . , be the corresponding eigenvalues,
that is
(x ) = x
= 1, 2 . . . ,
Then for x = 1 x1 + 2 x2 + + x
(x) = x (x)
= (1 x1 + 2 x2 + + x ) (1 x1 + 2 x2 + + x )
= (1 x1 + 2 x2 + + x ) (1 (x1 ) + 2 (x2 ) + + (x ))
= (1 x1 + 2 x2 + + x ) (1 1 x1 + 2 2 x2 + + x )
= 1 1 1 + 2 2 2 + +
= 1 21 + 2 22 + + 2
3.92
212 2 212 2
+ 22 22
11 2 11 2
(
)2 ) (
)
212
12
12
2
= 11 1 + 2
1 2 +
2
+ 22
22
11
11
11
(
)2 (
)
11 22 212
12
= 11 1 +
2 +
22
11
11
2. We observe that must be positive for every 1 and 2 provided 11 > 0 and
11 22 212 > 0. Similarly must be negative for every 1 and 2 if 11 > 0 and
11 22 212 > 0. Otherwise, we can choose values for 1 and 2 which make
both positive and negative.
Note that the condition 11 22 > 212 > 0 implies that 11 and 12 must have the
same sign.
3. If 11 = 22 = 0, then is indenite. Otherwise, if 11 = 0 but 22 = 0, then the
can we can complete the square using 22 and deduce
{
}
{
}
nonnegative
11 , 22 0
is
denite if and only if
and 11 22 212
nonpositive
11 , 22 0
140
> 0
(x) > 0
(x) 0
0
= 1, 2, . . . ,
< 0
(x) < 0
(x) 0
0
3.97 Let 1 , 2 , . . . , be the eigenvalues of . By Exercise 3.89
det() = 1 2 . . .
By Exercise 3.96, 0 for every and therefore det() 0. We conclude that
det() > 0 > 0 for every is positive denite
by Exercise 3.96.
3.98
= 1, 2, . . . }
Let be the matrix whose rows are a1 , a2 , . . . , a . Then is the set of solutions
to the homogeneous linear system x = 0, that is
= { : x = 0 }
Therefore
= x0 +
= x0 + { x : x = 0 }
= { x : (x x0 ) = 0 }
= { x : x = c }
where c = x0 .
3.102 Consider corresponding homogeneous system
1 + 32 = 0
1 2 = 0
142
for which the only solution is 1 = 0. Substituting in the rst equation implies 2 = 0.
The kernel of = x is {0}. Therefore dim (2 ) = 2, and the system x = has a
unique solution for every 1 , 2 .
3.103 We can write the system x = c in the form
11
1
1
1
..
..
.. ..
1 . + + . + + . = .
1
11
1
1 1
..
1 ... + +
+ + .. = 0
.
11 . . .
..
= .
...
( 1 1 )
..
.
( )
...
...
1
..
.
are linearly dependent (Exercise 1.133). Therefore det() = 0. Let denote the
matrix obtained from by replacing the th column with c. Then , and dier
only in the th column, with the th column of being a linear combination of the
th columns of and .
1
1
1
..
.. ..
=
.
.
.
By Exercise 3.81
det() = x det() det( ) = 0
and therefore
=
det( )
det()
as required.
3.104 Let
(
)1 (
143
where = . Similarly
(
1
=
0
)
0
1
1
=
1
0
=
=
1
0
=
=
(3.42)
where e is the -th unit vector (the Arrow-Debreu security). (3.42) has a solution
for every state if and only if ( ) = , that is rank = .
3.107 Figure 3.1.
3.108 Let be an ane subset of . Then there exists (Exercise 3.101) a system of
linear equations x = c such that
= { x : x = c }
Let a denote the -th row of . Then
= { : a x = , = 1, 2, . . . , } =
{ x : a x = }
=1
from
x = c
to give
x = (x y) = c
(c) Note that x > 0 and therefore > 0 which implies that
> 0 for every
0. For every > 0, / , which implies that , so that
0
is a feasible solution.
Therefore, x
(d) There exists some coordinate such that = / so that
= = 0
so that
c=
=1
1. Exercise 1.173.
2. For each , there exists elements x and coecients > 0 such that
x =
=1
and
=1
= 1. Hence
x=
x =
=1
=1 =1
3. Direct computation.
4. Regarding the as variables and the points as coecents,
z=
=1 =1
146
a basic feasible solution. That is, there exists coecients 0 and > 0 for
at most ( + ) components such that
z=
(3.43)
=1 =1
=1 =1
and
= 1
for every
=1
5. (3.43) implies that at least one > 0 for every . This accounts for at least
of the positive . Since there are at most ( + ) coecients which are
strictly positive, there are at most indices which have more than one positive
coecient . For the remaining indices, x = x for some ; that is
x .
3.113
(3.44)
Suppose to the contrary that z 0. That is, there exists some component < 0.
Let
= max{ }
= 1, 2, . . . ,
, = 1, 2, . . . , ,
Therefore
= 0
147
(3.45)
where 1
is the column of 1 . Since x 0 for every , we conclude that 1 0.
= +
0
=
Recall that 0 for = . The vector of unit prots for all industries is
= p 0
Prots will be zero in all industries if there exists a price system p such that
= p 0 = 0
or
p = 0
(3.46)
3.117 Let denote the steady state unemployment rate for blacks. Then satises
the equation
= 0.0038(1 ) + 0.8975
which implies that = 0.036. That is, the data implies an unemployment rate of 3.6
percent for blacks. Similarly, the unemployment rate for white males satises the
equation
= 0.0022(1 ) + 0.8614
which implies that = 0.016 or 1.6 percent.
3.118 The transition matrix is
(
=
)
.6 .25
.4 .75
If the current state vector is x0 = (.4, .6), the state vector after a single mailing will be
x1 = x0
(
)(
)
.6 .25
.4
=
.4 .75
.6
(
)
0.39
=
.61
Following a single mailing, the number of subscribers will drop to 30 percent of the
mailing list, comprising 24 percent from renewals and 15 percent new subscriptions.
3.119 Let () = 2 . For every 1 , 2 and 0 1
(1 + (1 )2 ) = (1 + (1 )2 )2
= (1 + (1 )2 )(1 + (1 )2 )
= 2 21 + 2(1 )1 2 + (1 )2 22
= 21 + (1 )22 21 (1 )22 + 2 21 + 2(1 )1 2 + (1 )2 22
)
(
= 21 + (1 )22 (1 )21 2(1 )1 2 + (1 )22
= 21 + (1 )22 (1 )(1 2 )2
21 + (1 )22
= (1 ) + (1 )(2 )
3.120 () = is linear and therefore convex. In the previous exercise we showed that
2 is convex. Therefore () = is convex for = 1, 2. Assume that is convex for
149
1. Then
(1 + (1 )2 ) = (1 + (1 )2 )
= (1 + (1 )2 )(1 + (1 )2 )1
(1 + (1 )2 )(1
+ (1 )1
)
1
2
(since 1 is convex)
= 2 1 + (1 )1
2 + (1 )1 1
+ (1 )2 2
1
2
= 1 + (1 )2 1 (1 )2
+ 2 1 + (1 )1
2 + (1 )1 1
+ (1 )2 2
1
2
)
(
1
= 1 + (1 )2 (1 ) 1 1 1
2
2
2
1
(
)
1
1
= 1 + (1 )2 (1 ) 1 (1 2 ) 2 (1 2 )
(
)
1
)
= 1 + (1 )2 (1 ) (1 2 )(1
1
2
Since is monotonic (Example 2.53)
1
1
0 1 2 0
1
2
and therefore
(1 2 )(1
1
)0
1
2
We conclude that
(1 + (1 )2 ) 1 + (1 )2 = (1 ) + (1 )(2 )
is convex for all = 1, 2, . . . .
3.121 For given x1 , x2 , dene : [0, 1] by
() = (1 )x1 + x2
Then (0) = x1 , (1) = x2 and = .
Assume is convex. For any 1 , 2 [0, 1], let
1 and (2 ) = x
2
(1 ) = x
For any [0, 1]
)
(
x1 + (1 )
1 + (1 )2 =
x2
)
(
)
(
x1 + (1 )
1 + (1 )2 =
x2
(
x1 ) + (1 ) (
x2 )
(1 ) + (1 )2 )
is convex.
Conversely, assume is convex for any x1 , x2 . For any [0, 1]
() = x1 + (1 )x2
and
)
(
x1 + (1 )x2 = ()
(0) + (1 )(1)
= (x1 ) + (1 ) (x2 )
3.122 Assume is convex which implies epi is convex. The points (x , (x )) epi .
Since epi is convex
1 (x1 , (x1 )) + 2 (x1 , (x1 )) + + (x , (x )) epi
that is
(1 x1 + 2 x2 + + x ) 1 (x1 ) + 2 (x1 ) + + (x ))
Conversely, letting = 2 and = 1 , (3.25) implies that
(x1 + (1 )x2 ) (x1 ) + (1 ) (x2 )
Jensens inequality can also be proved by induction from the denition of a convex
function (see for example Sydsaeter + Hammond 1995; p.624).
3.123 For each , let = log so that
=
> 0 =
exp( ) = exp
=1
as required.
3.124 Assume is concave. That is for every x1 , x2 and 0 1
(x1 + (1 )x2 ) (x1 ) + (1 ) (x2 )
Multiplying through by 1 reverses the inequality so that
(x1 + (1 )x2 ) (x1 ) + (1 ) (x2 ) = (x1 ) + (1 ) (x2 )
which shows that is concave. The converse follows analogously.
3.125 Assume that is concave. Then is convex and by Theorem 3.7
epi = { (, ) : (), }
is convex. But
epi = { (, ) : (), } = { (, ) : (), } = hypo
Therefore hypo is convex.
Conversely, if hypo is convex, epi is convex which implies that is convex and
hence is concave.
151
3.126 Suppose that x1 minimizes the cost of producing at input prices w1 while x2
be the weighted average price, that is
minimizes cost at w2 . For some [0, 1], let w
= w1 + (1 )w2
w
minimizes cost at w.
Then
and suppose that x
) = w
x
(w,
x
= (w1 + (1 )w2 )
+ (1 )w2 x
= w1 x
But since x1 and x2 minimize cost at w1 and w2 respectively
w1 x1 = (w1 , )
w1 x
(1 )w2 x2 = (1 )(w2 , )
(1 )w2 x
so that
+ (1 )w2 x
(w1 , ) + (1 )w2 , )
) = (w1 + (1 )w2 , ) = w1 x
(w,
This establishes that the cost function is concave in w.
3.127 Since is concave, Jensens inequality implies
(
)
1
1
( ) =
( )
=1
=1
=1
for any consumption stream 1 , 2 , . . . , so that
(
)
1
= (
=
( )
)
=1
=1
It is impossible to do better than consume a constant fraction = / of wealth in
each period.
3.128 If 1 = 3 , the inequality is trivially satised. Now assume 1 = 3 . Since
2 [1 , 3 ], there exists [0, 1] such that
2 = 1 + (1 )2
Let
= 1 2 + 3 . Then
[1 , 3 ] and there exists [0, 1] such that
= 1 + (1 )2
Adding
(
)
+ 2 = ( + )1 + (1 ) + (1 ) 3
or
1 3 = ( + )(3 1 )
which implies that + = 1 and therefore = 1 . Since is convex
(2 ) (1 ) + (1 ) (2
(
) (1 ) + (1 ) (2 )
= (1 ) (1 ) + (3 )
Adding
(
) + (2 ) (1 ) + (3 )
152
(x + (1 )x ) (x ) + (1 )(x )
(3.47)
(3.48)
(3.49)
3.133 If is convex
(x1 + (1 )x2 ) (x1 ) + (1 ) (x2 )
Since is increasing
(
)
(
)
(x1 + (1 )x2 ) (x1 ) + (1 ) (x2 )
)
(
)
(
(x1 ) + (1 ) (x2 )
since is also convex. The concave case is proved similarly.
3.134 Let = log . If is convex, (x) = (x) is an increasing convex function of a
convex function and is therefore convex (Exercise 3.133).
3.135 If is positive and concave, then log is concave (Exercise 3.51). Therefore
log
1
= log 1 log = log
is convex. By the previous exercise (Exercise 3.134), this implies that 1/ is convex.
If is negative and convex, then is positive and concave, 1/ is convex, and
therefore 1/ is concave.
3.136 Consider the identity
)
(
)
(
)
(
)
(
(1 2 ) + (1 2 ) (1 ) (2 )
)
(
)
(
)
(
)
)
)
(
= (1 2 ) + (1 2 ) (1 ) (1 2 ) + (1 2 ) (1 )
(
)
(
)
+ (1 2 ) + (1 2 ) (1 ) (2 )
(3.50)
Dene
(
)
(
)
(
)
(
)
(1 , 2 ) = (1 2 ) + (1 2 ) (1 ) (2 )
Then is supermodular if is nonnegative denite and submodular if is nonpositive denite. Using the identity (3.50), can be decomposed into two components
(1 , 2 ) = 1 (1 , 2 ) + 2 (1 , 2 )
(
)
(
)
(
)
1 (1 , 2 ) = (1 2 ) + (1 2 ) (1 )
(
)
(1 2 ) + (1 2 ) (1 )
(
)
(
)
2 (1 , 2 ) = (1 2 ) + (1 2 ) (1 ) (2 )
(3.51)
1 (1 , 2 ) = () + () () ( + )
Now consider 2 .
}
{
}
convex
if is
0
concave
{ }
{
}
supermodular
(1 2 ) + (1 2 ) (1 ) is
(2 ) if is
submodular
154
(3.52)
2 (1 , 2 ) =
0 if is supermodular
0 if is submodular
(3.53)
(3.54)
(3.55)
1
z+
(2x0 x)
x0 =
1+
1+
3. Note that
(2x0 x) = x0 (x x0 ) (x0 )
so that
(2x0 x)
and therefore
(x0 )
1
1
(z) +
(2x0 x)
(z) +
1+
1+
1+
1+
which implies
(1 + ) (x0 ) (z) +
( (x0 ) ) (z) (x0 )
4. Combined with (3.56) we have
( (x0 ) ) (z) (x0 ) ( (x0 ))
or
(z) (x0 ) ( (x0 ))
and therefore (z) (x0 ) as z x0 . is continuous.
155
(3.56)
2. Let = 1
. The open ball (x1 ) of radius centered on x1 is contained in .
Therefore is a neighborhood of x1 .
3. Since is convex, for every y
(y) (1 ) (x) + (z) (1 ) + (z) + (z)
Therefore is bounded on .
3.139 The previous exercise showed that is locally bounded from above for every
x . To show that it is also locally bounded from below, choose some x0 . There
exists some (x0 and such that
(x) for every x (x0 )
Choose some 1 (x0 ) and let x2 = 2x0 x1 . Then
x2 = 2x0 x1 = x0 (x1 x0 ) (x0 )
and (x2 ) . Since is convex
(x)
1
1
(x1 ) + (x2 )
2
2
and therefore
(x1 ) 2 (x) (x2 )
Since (x2 ) , (x2 ) and therefore
(x1 ) 2 (x)
so that is bounded from below.
3.140 Let be a convex function dened on an open convex set in a normed linear
space, which is bounded from above in a neighborhood of a single point x0 . By
Exercise 3.138, is bounded above at every x . This implies (Exercise 3.137) that
is continuous at every x .
3.141 Without loss of generality, assume 0 . Assume has dimension and let
x1 , x2 , . . . , x be a basis for the subspace containing . Choose some > 0 small
enough so that
= conv {0, x1 , x2 , . . . , }
Any x is a convex
combination of the points 0, x1 , x2 , . . . , x and so there exists
0 , 1 , 2 , . . . , 0,
= 1 such that x = 0 0 + 1 x1 + + x . By Jensens
inequality
(x) = (0 0 + 1 x1 + + x ) 0 (0) + 1 (x1 ) + + (x )
max{ (0), (x1 ), . . . , (x ) }
Therefore, is bounded above on a neighbourhood of some x0 int (which is
nonempty by Exercise 1.229). By Proposition 3.8, is continuous on .
156
1
1
x + x
2
2
1/
(x) }
= { + : (x)
which is a halfspace in and therefore convex. Similarly, the lower contour set
() = { : (x) }
is also a halfspace and hence convex. Therefore is both quasiconcave and quasiconvex.
3.152 For 0
() = { : (x) 0 } =
which is convex. For > 0
() = { : (x) }
(x)
}
(x)
= { : (x) (x) }
= { :
= { : (x) (x) 0 }
is convex since = + () is concave (Exercises 3.124 and 3.131). Since ()
is convex for every , is quasiconcave.
159
3.153
(x)
(x)
(x) =
log (x)
=1
(
x, )
Since is convex in
= (
()
x, )
= (
x, 1 + (1 ) 2 )
(
x, 1 ) + (1 ) (x , 2 )
(x1 , 1 ) + (1 ) (x2 , 2 )
= ( 1 ) + (1 )( 2 )
is convex.
3.157 Assume to the contrary that x1 and x2 are distinct optimal solutions, that is
x2 , for some , so that
x1 , x2 (), x1 =
(x1 , ) = (x2 , ) = () (x, ) for every x ()
= x1 + (1 )x2 for (0, 1). Since () is convex, x
is feasible. Since is
Let x
strictly quasiconcave
(
x, ) > min{ (x1 , ), (x2 , ) } = ()
contradicting the optimality of x1 and x2 . We conclude that () is single-valued for
every . In other words, is a function.
3.158
sup (x)
x(0 )
where
(x) =
=0
160
( , +1 )
and
(0 ) = {x : +1 ( ), = 0, 1, 2, . . . }
Since an optimal policy exists (Exercise 2.125), the maximum is attained and
(0 ) = max (x)
x(0 )
(3.57)
and therefore
min max (x, y) max (x, y )
y x
Similarly
max min (x, y)
x y
y x
161
y x
y x
The function
(x) = min (x, y)
y
x y
Then
() = min (, ) max (, ) = ()
and therefore
max () max ()
That is
max min (, ) max (, )
162
3.162 Clearly () = his homogeneous of degree . Conversely assume is homogeneous of degree , that is
() = ()
Letting = 1
() = (1)
Setting (1) = and interchanging and yields the result.
3.163
1/
(x) = (1 (1 ) + 2 (2 ) + . . . ( ) )
1/
= (1 1 + 2 2 + . . . )
= (x)
3.164 For ++
() = (x0 ) = (x0 ) = ()
3.165 Suppose that x minimizes the cost of producing output at prices w. That is
w x w x
for every x ()
It follows that
w x w x
for every x ()
for every > 0, verifying that x minimizes the cost of producing at prices w.
Therefore
(w, ) = (w)x = (w x ) = (w, )
(w, ) homogeneous of degree one in input prices w.
3.166 For given prices w, let x minimize the cost of producing one unit of output, so
that (w, 1) = w x . Clearly (x ) = 1 where is the production function.
Now consider any output . Since is homogeneous
(x ) = (x ) =
Therefore x is sucient to produce , so that
(w, ) w (x ) = w x = (w, 1)
Suppose that
(w, ) < w (x ) = (w, 1)
Then there exists x such that (x ) = and
w x < w (x )
which implies that
w
< w x = (w, 1)
163
)
=
1
(x ) = 1
Therefore, x is a lower cost method of producing one unit of output, contradicting the
denition of x . We conclude that
(w, ) = (w, 1)
(w, ) is homogeneous of degree one in .
3.167 If the consumers demand is invariant to proportionate changes in all prices and
income, so also will the derived utility. More formally, suppose that x maximizes
utility at prices p and income , that is
x x
Then
(p, ) = (x )
Since (p, ) = (p, )
x x
and
(p, ) = (x ) = (p, )
3.168 Assume is homogeneous of degree one, so that
(x) = (x)
(3.58)
Then (x, ) epi . Since epi is a cone, we must have (x, /) epi so that
(x)
and
(x) = (x)
contradicting (3.58). We conclude that
(x) = (x) for every > 0
164
=
=1
1
2
Since is quasiconcave
(
)
x2
x1
+ (1 )
1
1
2
+
1
1 + 2
1 + 2
Again using the homogeneity of , this implies
(x1 + x2 ) 1 + 2 = (x1 ) + (x2 )
3.170 Let () be a strictly positive denite, quasiconcave functional which is
homogeneous of degree one. For any x1 , x2 in and 0 1 x1 , (1 )x2 in
and therefore
(x1 + (1 )x2 ) (x1 ) + ((1 )x2 )
since is superadditive (Exercise 3.169). But
(x1 ) = (x1 )
((1 )x2 ) = (1 ) (x2 )
by homogeneity. Substituting in (3.58), we conclude that
(x1 + (1 )x2 ) (x1 ) + (1 ) ((1 )x2 )
is concave.
3.171 Assume that is strictly positive denite, quasiconcave and homogeneous of
degree , 0 < < 1. Dene
(x) = ( (x))
1/
(x) = ( (x))
(
)1/
= (x)
= ( (x))
1/
= (x)
so that is homogeneous of degree 1. By Exercise 3.170, is concave.
(x) = ((x))
That is = where
() =
is monotone and concave provided 1. By Exercise 3.133, = is concave.
165
3.172 Continuity is a necessary and sucient condition for the existence of a utility
function representing (Remark 2.9).
Suppose represents the homothetic preference relation . For any x1 , x2
(x1 ) = (x2 ) = x1 x2 = x1 x2 = (x1 ) = (x2 ) for every > 0
Conversely, if is a homothetic functional,
x1 x2 = (x1 ) = (x2 ) = (x1 ) = (x2 ) = x1 x2 for every > 0
3.173 Suppose that = where is strictly increasing and is homogeneous of
degree . Then
(
)1/
(x)
= (x)
where
is homogeneous of degree one and =
( )
() = )
is increasing.
3.174 Assume x1 , x2 with
(x1 ) = ((x1 )) = (x2 )) = (x2 )
Since is strictly increasing, this implies that
(x1 ) = (x2 )
Since is homogeneous
(x1 ) = (x1 ) = (x2 ) = (x2 )
for some . Therefore
(x1 ) = ((x1 )) = ((x2 )) = (x2 )
3.175 Let x0 = 0 be any point in , and dene : by
() = (x0 )
Since is strictly increasing, so is and therefore has a strictly increasing inverse
1 . Let = 1 so that = .
We need to show that is homogeneous. For any x , there exists such that
() = (x0 ) = (x)
that is = (x) = 1 ( (x)). Since is homothetic
() = (x0 ) (x) for every > 0
and therefore
(x) = 1 ( (x)) = 1 ( (x0 )) = 1 () = = (x)
is homogeneous of degree one.
166
3.176 Let be the production function. If is homothetic, there exists (Exercise 3.175)
a linearly homogeneous function and strictly increasing function such that = .
(w, ) = min{ w x : (x) }
x
= min{ w x : ((x)) }
x
= min{ w x : (x) 1 () }
x
= 1 ()(w, 1)
by Exercise 3.166.
3.177 Let : be positive, strictly increasing, homothetic and quasiconcave. By
Exercise 3.175, there exists a linearly homogeneous function : and strictly
increasing function () such that = . = 1 is positive, quasiconcave
(Exercise 3.148) and homogeneous of degree one. By Proposition 3.12, is concave
and therefore = is concaviable.
3.178 Since () is a supporting hyperplane to at x0 , then
(x0 ) =
and either
(x) = (x0 ) for every x
or
(x) = (x0 ) for every x
3.179 Suppose to the contrary that y = (, ) int . Then y y . By strict
convexity
y = y + (1 )y y for every (0, 1)
Since y int , y for suciently small. That is, there exists some such that
y is feasible and y y , contradicting the optimality of y .
3.180 For notational simplicity, let be the linear functional which separates and
in Example 3.77. (y) measure the cost of the plan y = (, ), that is (y) = + .
Assume to the contrary there exists a preferred lifestyle in , that is there exists some
y = (, ) such that y y = ( , ). Since y , (y) (y ) by (3.29). On
the other hand, y which implies that (y) (y ). Consequently, (y) = (y ).
By continuity, there exists some < 1 such that y y which implies that y .
By linearity
(y) = (y) < (y) = (y ) =
contrary to (3.29). This contradiction establishes that y is the best choice in budget
set .
3.181 By Proposition 3.7, epi is a convex set in with (x0 , (x0 )) a point on
its boundary. By Corollary 3.2.2 of the Separating Hyperplane Theorem, there exists
linear a functional ( ) such that
(x, ) (x0 , (x0 )) for every (x, ) epi
167
(3.59)
for every x
for every
(y) (x)
for every
A fortiori
for every x
168
y Since y
/ , y must be a boundary point of . By the previous exercise,
there exists a supporting hyperplane at y, that is there exists a continuous linear
functional such that
(y) (x)
3.185
for every x
1. () .
for every x , y
so that
(x) (y) for every x , y
Let = supx (x). Then
(x) (y) for every x , y
By Exercise 3.185, (int ) is an open interval in (, ], hence (int ) (, ),
so that (x) < for every x int . Similarly, (int ) > and
(x) < < (y) for every x int , y int
3.187 Since int = , int and can be separated. That is, there exists a
continuous linear functional and a number such that
(x) (y)
for every x , y
since
inf
yint
Conversely, suppose that and can be separated. That is, there exists such
that
(x) (y)
for every x , y
169
for every 0
for every x
3.190 First note that 0 and therefore (0) = 0 so that 0. Suppose that
there exists some z for which (z) = = 0. By linearity, this implies
(
2
2
z) = (z) = 2 >
for every x , z
By Exercise 3.190
(z) = 0
for every z
(x) 0
for every x
and therefore
for every x , y
Since int = , there exists some x int with (x) < . Hence 1 () = ().
3.193 Follows directly from the basic separation theorem, since = int and =
int .
3.194 Let = . Then
1. is a nonempty, closed, convex set (Exercise 1.203).
2. 0
/ .
There exists a continuous linear functional such that
(x) > (0) = 0
170
and
sup (x) < inf (y)
for every x , u , y
for every x , y
Conversely, assume that and can be strongly separated. That is, there exists
a continuous linear functional and number > 0 such that
(x) < + (y) for every x , y
Let = { : () < }. is a convex neighborhood of 0 such that
( + ) = .
171
x,u,y
inf x y sup u)
x,y
= 2
=>0
Therefore ( + ) = and so and can be strongly separated.
Conversely, assume that and can be strongly separated, so that there exists a
convex neighborhood of 0 such that ( + ) = . Therefore, there exists > 0
such that (0) and
+ =
This implies that
(, ) = inf{ x y : x , y } > > 0
3.198 Take = {y} and = in Proposition 3.14. There exists such that
(y) < (x)
for every x
By Corollary 3.2.3, = 0.
3.199
for every z
(3.60)
for every z
172
(3.61)
for every z
()
=1
(x) = 0
=1
(x) = 0
=1
and
> 0
=1
= 0 =
=1
= 0
=1
= 1, 2, . . . ,
then
(x) =
=1
=1
and
= 0 =
=1
=1
173
= 0
= { x : x = 1 } is
3.202 The set
1
compact (the unit ball is compact if and only if is nite-dimensional)
convex (which is why we need the 1 norm)
By Proposition 3.14, there exists a linear functional such that
for every x
for every x
(
x) > 0
(x) = 0
Then
= x/ x1 .
For any x , x = 0, dene x
) = x1 (
(x) = (x1 x
x) > 0
3.203
1. Let
= { (x, ) : (x), x }
= { (x, ) : = 0 (x), x }
is the epigraph of a convex functional and hence convex. is a subspace of
= and also convex.
There exists such that > (0) and therefore (0, ) int and (0, ) > 0.
Therefore
(0, 1) =
1
(0, 1) > 0
4. Let be dened by
1
(x) = (x, 0)
for every
5. For every x
1
(x) = (x, 0 (x)) + 0 (x)
= 0 (x)
since (x, 0 (x)) = 0 for every x . Thus is an extension of 0 .
174
1
= (x, ) + (x)
(x)
Therefore is bounded by as required.
3.204 Let be dened by
(x) = 0 x
Then 0 (x) (x) for all x . By the Hahn-Banach theorem (Exercise 3.15), there
exists an extension such that
(x) (x) = 0 x
Therefore
= sup (x) = 0
x=1
1.
(3.62)
(3.63)
(3.64)
On the other hand, by Exercise 3.16, attains its maximum at an extreme point of .
That is, there exists x1 such that
(x1 ) (x) for every x
In particular
(x1 ) (x0 )
=1 z = x.
since z (x).
max
=1
z+
=
z +
=1
y =
=1
z = x
=1
1 + 1
z + z
2
2
which implies that z is not an extreme point of (x), contrary to our assumption. This establishes that at least z are extreme points of the
corresponding conv .
177
4
3
(0, 2.5)
conv 2
2
(.5, 2)
P(x)
1
0
conv 1
Figure 3.3: Illustrating the proof of the Shapley Folkman theorem.
3. Every extreme point of conv is an element of .
3.211 See Figure 3.3.
3.212 Let {1 , 2 , . . . , } be a
collection of
subsets of an -dimensional
nonempty
=
conv
=1
=1
conv such that x = =1 x . By Caratheodorys theorem, there exists for every x
a nite number of points x1 , x2 , . . . , x such that x conv {x1 , x2 , . . . , x }.
For every = 1, 2, . . . , , let
= { x : = 1, 2, . . . , }
Then
x=
x ,
x conv
=1
z ,
z conv
=1
178
inf w x = (w, )
x ()
=
{ x : (x) }
=1
for every x
Since is a cone, 0 and (0) = 0 < . Since = for every > 0 then
(x) < 0
for every x
/ . That is
so that . (y) > 0, y
y
/ = y
/
from which we conclude that .
3.223 Let
= cone {1 , 2 , . . . , }
= { : =
, 0 }
=1
)
() = (
=1
=1
Since can be made arbitrarily large, this last inequality implies that
( ) 0
= 1, 2, . . . ,
x . By hypothesis
(x) = ( ) 0
contradicting the conclusion that ( ) > 0. This contradiction establishes that ,
that is
() =
(),
=1
3.224 Let a1 , a2 , . . . , a denote the rows of and dene the linear functional , 1 , 2 , . . . ,
by
(x) = cx
(x) = a x = 1, 2, . . . ,
Assume cx 0 for every x satisfying x 0, that is (x) 0 for every x where
= { x : (x) 0, = 1, 2, . . . , }
By Proposition 3.18, there exists y
+ such that
(x) =
(x)
=1
or
c=
a = y
=1
=1
Then
x 0 = a x 0 for every = cx 0
3.225 Let = + denote the positive orthant of . is a convex set (indeed cone)
with a nonempty interior. By Corollary 3.2.1, there exists a hyperplane p () such
that
p x py
for every x , y
Since 0
p0 = 0
which implies that 0 and
p x 0
for every
for every
for every x
p x 0
for every x
3.228
=1
x (x )
=1
and therefore
0 = (x ) x =
Since individual preferences
are convex, (x ) is convex for each and therefore
183
Assume to the contrary that int = . That is, there exists some z
with z < 0. This implies that there exists some allocation (x1 , x2 , . . . , x ) such
that
x x < 0
z=
and x
for every . Distribute z equally to all the consumers. That is,
consider the allocation
y = x + z/
By strict monotonicity, y x x for every . Since
y =
x + z = x =
x
(3.65)
y = x +
x ,
1
(
x +
p (1 )x +
=
x = p x +
x p x +
x
1
=
for every x (x )
184
(3.66)
(3.67)
For each consumer, let be the dierence between her endowed wealth p w and her
required wealth p x . That is, dene
= p x p w = p (x w )
Then
p x = p + w
(3.68)
x
w =
(x w ) = 0
so that
= p
(x w ) = 0
3.232 Given a set of nancial assets with prices p and payo matrix , let
= { (px, ) : x }
is the set of all possible (cost, payo) pairs. It is a subspace of +1 . Let be the
nonnegative orthant in +1 . The no arbitrage condition
x 0 = p x 0
implies that = {0}. By Exercise 3.230, there exists a hyperplane with positive
normal = 0 , 1 , . . . , such that
z = 0
for every z
z > 0
{0}
for every z +1
+
That is
for every x
0 px + x = 0
or
p x = /0 x
for every x
=1
then clearly
x 0 = p x 0
No arbitrage portfolios exist.
3.233 Apply the Farkas lemma to the system
x 0
c x > 0
3.234 The inequality system y c has a nonnegative solution if and only if the
corresponding system of equations
y z = c
=c
z
(3.69)
x 0 and x 0
and the latter inequality implies x + . Thus we have established that the system
y c has no nonnegative solution if and only if
x 0 and c x > 0 for some x +
186
+ such that
3.235 Assume system I has a solution, that is there exists x
0
x = 0, c
x > 0, x
/c
Then x = x
x satises the system
x = 0, cx = 1, x 0
(3.70)
x = 0, xc = 1, x 0
(3.71)
which is equivalent to
Suppose y satises
y c
Multiplying by x 0 gives
x y xc
Substituting (3.71), this implies the contradiction
01
We conclude that system II cannot have a solution if I has a solution.
Now, assume system I has no solution. System I is equivalent to (3.70) which in turn
is equivalent to the system
(
)
(
)
0
x=
c
1
or
x = b
(3.72)
)
(
)
(
0
is ( + 1) and b =
+1 . If (3.72) has no solution,
where =
c
1
there exists (by the Farkas alternative) some z +1 such that
z 0 and bz > 0
Decompose z into z = (y, ) with y and . The second inequality implies
that
(0, 1) (y, ) = 0y + = > 0
Without loss of generality, we can normalize so that = 1 and z = (y, 1).
Now = ( , c) and so the rst inequality implies that
(
)
y
( , c)
= y + c 0
1
or
y c
We conclude that II has a solution.
187
3.236 For every linear functional , there exists a vector a such that
(x) = a x
(Proposition 3.11). Let be the matrix whose rows are a , that is
1
a
a2
=
. . .
a
Then, the system of inequalities (3.31) is
x c
where c = (1 , 2 , . . . , ). By the preceding exercise, this system is consistent if and
only there is no solution to the system
= 0
c > 0
Now
= 0
= 0
= 1, 2, . . . ,
=1
= 0 =
=1
=1
x = 0
is equivalent to the system
x 0
cx > 0
(3.73)
2
By the Farkas alternative theorem, either (3.73) has a solution or there exists +
such that
= c
(3.74)
= (, ), , +
(x)
=1
or
c=
= y
=1
y
= 0, a contradiction. Hence, we
On the other hand, y = 0 which implies x
conclude that II cannot have a solution if I has a solution.
189
3.240 We have already shown (Exercise 3.239) that the alternatives I and II are mutually incompatible. If Gordans system II
y = 0
has a semipositive solution y 0, then we can normalize y such that 1y = 1 and the
system
y = 0
1y = 1
has a nonnegative solution.
Conversely, if Gordans system II has no solution, the system
y = c
(
where =
and c = (0, 1) = (0, 0, . . . , 0, 1), 0 , is the ( + 1)st unit
1
vector has no solution y 0. By the Farkas lemma, there exists z +1 such that
z 0
cz < 0
Decompose z into z = (x, ) with x . The second inequality implies that < 0
since
cz = (0, 1) (x, ) = < 0
Since = (, 1), the rst inequality implies that
z = (, 1)(x, ) = x + 1 0
or
x 1 > 0
x solves Gordans system I.
3.241 Let a1 , a2 , . . . , a be a basis for . Let
= (a1 , a2 , . . . , a )
be the matrix whose columns are a . To say that contains no positive vector means
that the system
x > 0
has no solution. By Gordans theorem, there exists some y 0 such that
y = 0
that is
a y = ya = 0, = 1, 2, . . . ,
so that y .
190
y
= 0, a contradiction. Hence, we
On the other hand, y = 0 which implies x
conclude that II cannot have a solution if I has a solution.
3.244 The inequality system y 0 has a nonnegative solution if and only if the
corresponding system of equations
y + z = 0
=0
z
(3.75)
x > 0
)
, x > 0 implies
(3.76)
or
x 1 > 0
Thus system I has a solution x + . Since x = 0 implies x = 0, we conclude that
x 0.
Conversely, assume that II has a solution y 0 such that y 0. Then, for every
x +
x y = y x 0
Since y 0, this implies
x 0
for every x + which contradicts I.
3.246 We give a constructive proof, by proposing an algorithm which will generate
the desired decomposition. Assume that x satises x 0. Arrange the rows of
such that the positive elements of x are listed rst. That is, decompose into two
submatrices such that
1x > 0
1x = 0
Either
Case 1 1 x 0 has no solution and the result is proved or
192
b x
b x
= 0, y 0, z 0
x 0 and ( , )
z
(3.77)
Assume that x > 0 has no solution (Gordan I). Then there exists some such that
(x ) = 0 and (3.77) implies that > 0. Therefore y 0 and solves Gordan II.
Conversely, assume that y = 0 has no solution y > 0 (Stiemke II). Then, there
exists some such that = 0 and (3.77) implies that (x ) > 0). Therefore x
solves x 0 (Stiemke I).
3.250 We have already shown that Farkas I and II are mutually inconsistent. Assume
that Farkas system I
x 0, c x < 0
(
has no solution. Dene the ( + 1) matrix =
the system
x 0
194
)
. Our assumption is that
has no solution with (x)+1 = cx > 0. By Tuckers theorem, the dual system
z = 0
has a solution z +1
with z+1 > 0. Without loss of generality, we can normalize
+
z = 0 implies
z = ( , c)(y, 1) = y c = 0
or
y = c
y
+ solves Farkas II.
3.251 If x 0 solves I, then
x ( y1 + y2 + y3 ) = x y1 + x y2 + x y3 ) > 0
since x y1 = y1 x > 0, x y2 = y2 x 0 and x y3 = y3 x = 0 which
contradicts II.
The equation x = 0 is equivalent to the pair of inequalities x 0, x 0. By
Tuckers theorem the dual pair
y1 + y2 + y3 y4 = 0
x 0
x 0
x 0
x 0
x + y1 > 0
y2 0
u3 0
x + y2 > 0
x + u3 > 0
v3 0
x + v3 > 0
a = 0,
=1
= 1, 0
=1
a = 0
=1
195
has no solution
+ . If is the n matrix whose rows are a , the latter
system can be written as
y = 0
3. By Gordans theorem, the system
x > 0
(3.78)
= 0.
has a solution x
4. Without loss of generality, we can take
x = 1. (3.78) implies that
=x
a > 0
a x
a . Hence
for every = 1, 2 . . . , so that x
=1
5. We have shown that for every nite set {a1 , a2 , . . . , a } , =1 a is nonempty closed subset of the compact set = { : x = 1}. By the Finite
intersection property (Exercise 1.116)
a =
a
6. For every p
a
pa 0 for every a
= pa
=1
where a is the th column of . The expected payo to 1 for all possible responses
of player 2 is the vector (p) = p. The mixed strategy p ensures player 1 a
nonnegative security level provided p 0.
Similarly, if 2 adopts the mixed strategy q = (1 , 2 , . . . , ), the expected payo to 2
if 1 plays his strategy is a q where a is the th row of . The expected outcome for
all the possible responses of player 1 is the vector q. The mixed strategy q ensures
player 2 a nonpositive security level provided q 0.
By the von Neumann alternative theorem (Exercise 3.245), at least one of these alternatives must be true. That is, either
Either I p > 0, p 0 for some p
or II q 0, q 0 for some q
Since p 0 and q 0, we can normalize so that p 1 and q 1 . At least
one of the players has a strategy which guarantees she cannot lose.
196
2 = min max
(, q) = min max (, q) = 2
q
2. Let (p, q) denote the expected outcome when player 1 adopts mixed strategy p
and player 2 plays q. That is
(p, q) =
=1 =1
Then
= (p , q ) = max (, q )
Similarly
= (p , q ) = min (p , )
(p , ) = (p , q) for every q 1
(p , q ) is a Nash equilibrium.
197
3.256 By the Minimax theorem, every nite two person zero-sum game has a value.
The previous result shows that this is attained at a Nash equilibrium.
3.257 If player 2 adopts the strategy 1
p (1 ) = 1 + 22 < 0 if 1 > 22
If player 2 adopts the strategy 5
p (5 ) = 1 22 < 0 if 1 < 22
Therefore
1 (p) = min p (z) min{p (1 ), p (5 )} < 0
1.
2 = min max
z =1
max = 0
=1
198
=1
= 1 and therefore
4. Consequently
1 = max 1 (p) 1 (p ) 0
p
so that
1 = max 1 (p) 0
p
We conclude that
1 = 0 = 2
3.259 Consider the game with the same strategies and the payo function
(a1 , a2 ) = (a1 , a2 )
The expected value to player 2 is
(, q) = min max (, q) = 2 = 0
2 = min max
q
3.260 Assume that p1 and p2 are both optimal strategies for player 1. Then
(p1 , q) for every q 1
(p2 , q) for every q 1
= p1 , p2 + (1 ). Since is bilinear
Let p
(
p, q) = (p1 , q) + (1 )(p2 , q) for every q 1
is also an optimal strategy for player 1.
Consequently, p
3.261 is the payo function of some 2 person zero-sum game in which the players
have + 1 and + 1 strategies respectively. The result follows from the Minimax
Theorem.
3.262
, , = , = =
{1, 2, 3}
In any partition, at most one coalition can have two or more players, and therefore
( ) 1
=1
199
( )
=1
( )
= 1, 2, . . . ,
Since {1 , 2 , . . . , } is a partition
=1
( ) > ( )
=1
which contradicts the assumption that x core. This establishes that cohesivity is
necessary for the existence of the core.
To show that cohesivity is not sucient, we observe that the three person majority
game is cohesive, but its core is empty.
3.264 The other balanced families of coalitions in a three player game are
1. = { } with weights
{
() =
1
0
=
otherwise
Weights
1/2, 1/2, 1/2
1/2, 1/2, 1/2, 1
1/2, 1/2, 1/2, 1/2
2/3, 1/3, 1/3, 1/3
1/3, 1/3, 1/3, 1/3
are vectors, with each component corresponding to a particular player. For player ,
the component of e is 1 and the component of e is 1 if and 0 otherwise.
Therefore, for each player , the preceding expression can be written
= 1
(x) =
= e x
The condition
=
(3.79)
(x)
Substituting (3.79)
e x =
e = e
3.267 By construction, 0. If = 0,
= 0
() ( ) 0
is trivially satised. On the other hand, if > 0, we can divide both conditions by .)
201
e =
e
() = ( ) + > ( )
which contradicts the assumption that the game is balanced. We conclude that
and are disjoint if the game is balanced.
2. (a) Substituting y = (e , 0) in (3.36) gives
(z, 0 ) (0, 0) = 0
which implies that 0.
NOTE We still have to show that 0.
(b) Substituting (e , ( )) in (3.36) gives
e + 0 ( ) > e + 0 ( ) + 0
for all > 0, which implies that 0 < 0.
3. Without loss of generality, we can normalize so that 0 = 1. Then the separating
hyperplane conditions become
(z, 1) y 0
(z, 1) (e , ( ) + ) < 0
for every y
(3.80)
(3.81)
This establishes that z belongs to the core. Hence the core is nonempty.
3.270
1. Let = ( ) > 0 since (, ) is essential. For every ,
dene
(
)
1
0
()
() =
Then
0 ({}) = 0 for every
0 ( ) = 1
0 is 01 normalized.
2. Let y core(, 0 ). Then for every
0 ()
(3.82)
= 1
(3.83)
=
( + )
0 () +
1
=
()
= ()
=
( + )
=+
= ( )
Therefore, x = y + w core(, ). Similarly, we can show that
x core(, ) = y =
1
(x w) core(, 0 )
and therefore
core(, ) = core(, 0 ) + w
203
core(, ) = core(, 0 ) =
3.271 (, ) is 01 normalized, that is
({} = 0 for every
( ) = 1
Consequently, x belongs to the core of (, ) if and only if
= 0
(3.84)
= ( ) = 1
(3.85)
() for every
(3.86)
(3.84) and (3.85) ensure that x = (1 , 2 , . . . , ) is a mixed strategy for player 1 in the
two-person zero-sum game. Using this mixed strategy, the expected payo to player I
for any strategy of player II is
(x, ) =
(, ) =
1
()
(3.86) implies
(x, ) =
1
1 for every
()
That is any x core(, ) provides a mixed strategy for player I which ensures a
payo at least 1. That is
core(, ) = = 1
Conversely, if the < 1, there is no mixed strategy for player I which satises (3.86) and
consequently no x which satises (3.84), (3.85) and (3.86). In other words, core(, ) =
.
3.272 If is the value of , there exists a mixed strategy which will guarantee that II
pays no more than . That is, there exists numbers 0 for every coalition
such that
= 1
and
(, )
for every
that is
()
for every
204
or
1
()
for every
(3.87)
()
in (3.87)
Augment the collection with the single-player coalitions to form the collection
= { {} : }
and with weights { : } and
{} = 1
()
()
()
()
1
=
1
=
that is
1
1
1
=
> 0 for every
()
()
205
(3.88)
(3.89)
(x)
()
(x) =
= ( )
Substituting this in (3.90) gives
( )
206
()
(3.90)
We are told that nominal GDP at the end of the year, ( + )( + ), equals 1.10
times nominal GDP at the beginning of the year, . That is
( + )( + ) = 1.10
(4.42)
Furthermore, the price level at the end of the year, + equals 1.05 times the price
level of the start of year, :
+ = 1.05
Substituting this in equation (4.38) yields
1.05( + ) = 1.10
which can be solved to give
= (
1.10
1) = 0.0476
1.05
The growth rate of real GDP (/) is equal to 4.76 per cent.
207
To show how the estimate of 5 per cent involves a linear approximation, we expand the
expression for real GDP at the end of the year.
( + )( + ) = + + +
Dividing by
( + )( + )
=1+
+
+
=
+
+
(x) 0 as x 0
can be expressed as
lim (x) = 0
x0
4.4 Suppose not. That is, there exist two linear maps such that
(x0 + x) = (x0 ) + 1 (x) + x 1 (x)
(x0 + x) = (x0 ) + 2 (x) + x 2 (x)
with
lim (x) = 0,
x0
208
= 1, 2
x0
1 (x) 2 (x)
=0
x
1 (x) 2 (x)
x
By linearity,
1 (x) 2 (x)
= for every > 0
x
and therefore
lim
1 (x) 2 (x)
= = 0
x
x0
x0
x0
x0
= (x0 )
is continuous.
4.6
4.7
4.8 The approximation error at the point (2, 16) is
(2, 16)
(2, 16)
Absolute error
Percentage error
Relative error
=8.0000
=11.3333
=-3.3333
=-41.6667
=-4.1667
By contrast, (2, 16) = 8 = (2, 16). Table 4.1 shows that gives a good approximation
to in the neighborhood of (2, 16).
209
Approximation Error
Percentage Relative
(x0 + x)
(x0 + x)
8.0000
8.0000
0.0000
NIL
9.1577
9.1083
8.3300
7.1196
6.3496
6.7119
7.6631
8.5867
9.3333
9.1785
8.3333
7.2929
6.6667
6.8215
7.6667
8.7071
-1.9177
-0.7712
-0.0406
-2.4342
-4.9934
-1.6323
-0.0466
-1.4018
-0.1756
-0.0702
-0.0034
-0.1733
-0.3171
-0.1096
-0.0036
-0.1204
8.1312
8.1170
8.0333
7.9279
7.8644
7.8813
7.9666
8.0693
8.1333
8.1179
8.0333
7.9293
7.8667
7.8821
7.9667
8.0707
-0.0266
-0.0103
-0.0004
-0.0181
-0.0291
-0.0110
-0.0004
-0.0171
-0.0216
-0.0083
-0.0003
-0.0143
-0.0229
-0.0087
-0.0003
-0.0138
Parallel to the
(-2.0, 0.0)
(-1.0, 0.0)
(-0.5, 0.0)
(-0.1, 0.0)
(0.0, 0.0)
(0.1, 0.0)
(0.5, 0.0)
(1.0, 0.0)
(2.0, 0.0)
(4.0, 0.0)
x1 axis:
(0.0, 16.0)
(1.0, 16.0)
(1.5, 16.0)
(1.9, 16.0)
(2.0, 16.0)
(2.1, 16.0)
(2.5, 16.0)
(3.0, 16.0)
(4.0, 16.0)
(6.0, 16.0)
0.0000
6.3496
7.2685
7.8644
8.0000
8.1312
8.6177
9.1577
10.0794
11.5380
5.3333
6.6667
7.3333
7.8667
8.0000
8.1333
8.6667
9.3333
10.6667
13.3333
NIL
-4.9934
-0.8922
-0.0291
0.0000
-0.0266
-0.5678
-1.9177
-5.8267
-15.5602
-2.6667
-0.3171
-0.1297
-0.0229
NIL
-0.0216
-0.0979
-0.1756
-0.2936
-0.4488
Parallel to the
(0.0, -4.0)
(0.0, -2.0)
(0.0, -1.0)
(0.0, -0.5)
(0.0, -0.1)
(0.0, 0.0)
(0.0, 0.1)
(0.0, 0.5)
(0.0, 1.0)
(0.0, 2.0)
(0.0, 4.0)
x2 axis:
(2.0, 12.0)
(2.0, 14.0)
(2.0, 15.0)
(2.0, 15.5)
(2.0, 15.9)
(2.0, 16.0)
(2.0, 16.1)
(2.0, 16.5)
(2.0, 17.0)
(2.0, 18.0)
(2.0, 20.0)
6.6039
7.3186
7.6631
7.8325
7.9666
8.0000
8.0333
8.1658
8.3300
8.6535
9.2832
6.6667
7.3333
7.6667
7.8333
7.9667
8.0000
8.0333
8.1667
8.3333
8.6667
9.3333
-0.9511
-0.2012
-0.0466
-0.0112
-0.0004
0.0000
-0.0004
-0.0105
-0.0406
-0.1522
-0.5403
-0.0157
-0.0074
-0.0036
-0.0018
-0.0003
NIL
-0.0003
-0.0017
-0.0034
-0.0066
-0.0125
210
or
(x0 + x) (x0 ) [x0 ](x)
=0
0
x
lim
lim
that is
0
0
x [x0 ] = lim (x + x) (x ) = [x0 ](x)
(x0 + e ) (x0 )
= lim
0
= e [x ]
[x0 ] = lim
211
=1
Generalization of this example reveals that the directional derivative of along any
x0 [x0 ] = 1 for every x0 . Economically,
ray through the origin equals 1, that is
this means that increasing inputs in the same proportions leads to a proportionate
increase in output, which is the property of constant returns to scale. We will study
this property of homogeneity is some depth in Section 4.6.
4.13 Let p = (x0 ). Each component of p represents the action of the derivative on
an element of the standard basis {e1 , e2 , . . . , e }(see proof of Theorem 3.4)
= [x0 ](e )
Since e = 1, [x0 ](e ) is the directional derivative at x0 in the direction e (Exercise 4.10)
e (x0 )
= [x0 ](e ) =
But this is simply the partial derivative of (Exercise 4.11)
e (x0 ) = (x0 )
= [x0 ](e ) =
4.14 Using the standard inner product on (Example 3.26) and Exercise 4.13
< (x0 ), x >=
=1
= 1, 2, . . . ,
212
x (x0 ) measures the rate of increase of in the di4.16 The directional derivative
rection x. Using Exercises 4.10, 4.14 and 3.61, assuming x has unit norm,
x (x0 ) = [x0 ](x) =< (x0 ), x > (x0 )
This bound is attained when x = (x0 )/ (x0 ) since
(x0 )2
(x0 )
0
0
x (x ) =< (x ),
>=
= (x0 )
0
0
(x )
(x )
The directional derivative is maximized when (x0 ) and x are aligned.
4.17 Using Exercise 4.14
= { x :< [x0 ], x >= 0 }
4.18 Assume each is dierentiable at x0 and let
[x0 ] = (1 [x0 ], 2 [x0 ], . . . , [x0 ])
Then
(4.43)
1 [x0 ]
1 1 [x0 ] 2 1 [x0 ] . . . 1 [x0 ]
2 [x0 ] 1 2 [x0 ] 2 2 [x0 ] . . . 2 [x0 ]
=
=
..
..
..
..
..
.
.
.
.
.
[x0 ]
1 [x0 ] 2 [x0 ] . . .
[x0 ]
..
.
(x0 + x) (x0 ) [x0 ]x
213
and therefore
NOTE This is not quite right. See Spivak p. 23. Avez (Tilburg) has
(
)2
(x, y) x y x + y (x, y)2
which implies that
(x, y)
0 as (x, y) 0
(x, y)
lim
x1 ,x2 0
(x1 , x2 )
=0
x1 x2
215
(
)
() = exp log () = log
= 1 is dieren-
(x)
4.30 Applying the Product Rule to (1/)
1
1
[x]
[x, y] = (x) [y] +
(y)
[y]
1
= (x) (
[x]
)2 +
(y)
(y)
(y) [x] (x)[y]
=
(
)2
(y)
4.31 In the particular case where
1/3 2/3
(x1 , x2 ) = x1 x2
the partial derivatives at the point (8, 8) are
1 [(8, 8)] =
2
1
and 2 [(8, 8)] =
3
3
(
(x) =
(x)
1 2
, ,...,
1 2
)
(x)
4.33 Applying the chain rule (Exercise 4.22) to general power function (Example 4.15),
the partial derivatives of the CES function are
[x] =
1
1
1
(1 1 + 2 2 + + ) 1
= 1
(1 1 + 2 2 + + )
(
)1
(x)
=
216
4.34 Dene
() = ()
() ()
( )
() ()
( ) () = ()
() ()
=0
4.35 Assume (x) 0 for every x . By the mean value theorem, for any x2 x1
(x1 , x2 ) such that
in , there exists x
(x2 ) = (x1 ) + [
x](x2 x1 )
Using (4.6)
(x2 ) = (x1 ) +
(
x)(2 1 )
(4.44)
=1
(
x) 0 and x2 x1 implies that
(
x)(2 1 ) 0
=1
and therefore (x2 ) (x1 ). is increasing. The converse was established in Exercise
4.15
4.36 (
x) > 0 and x2 x1 implies that
(
x)(2 1 ) > 0
=1
Substituting in (4.44)
(x2 ) = (x1 ) +
(
x)(2 1 ) > (x1 )
=1
is strictly increasing.
4.37 Dierentiability implies the existence of the gradient and hence the partial derivatives of (Exercise 4.13). Continuity of [x] implies the continuity of the partial
derivatives.
To prove the converse, choose some x0 and dene for the partial functions
() = (01 , 02 , . . . , 01 , , 0+1 + +1 , . . . , 0 + )
= 1, 2, . . . ,
so that () = (x ) where x = (01 , 02 , . . . , 0 , , 0+1 + +1 , . . . , 0 + ). Further, 1 (01 + 1 ) = (x0 + x), (0 ) = (x0 ), and (0 + ) = 1 (0 ) so that
(x0 + x) (x0 ) =
(
)
(0 + ) (0 )
=1
217
By the mean value theorem, there exists, for each , between 0 + and such
that
(0 + ) ( ) = (
x )
= (01 , 02 , . . . , 0 , , 0+1 + +1 , . . . , 0 + ). Therefore
where x
(x0 + x) (x0 ) =
(
x )
=1
(x0 )
=1
Then
(x0 + x) (x0 ) (x) =
(
)
(
x ) (x0 )
=1
and
(x0 + x) (x0 ) (x)
( (
x ) (x0 )
=1
so that
lim
x ) (x0 )
x0
x
x
=1
( (
x ) (x0 )
=1
=0
since the partial derivatives (x) are continuous. Therefore is dierentiable with
derivative
(x) =
[x0 ]
=1
sup
x[x1 ,x2 ]
(x) x1 x2
sup [
x] [
x]
x
218
for every x . Given > 0, there exists such that for every , >
< / and <
Letting
(
)
(x) (x) (x0 ) (x0 ) x x0
(4.45)
for and x . Applying the mean value inequality to , there exists such
that
(x) (x0 ) x x0
(4.46)
Using (4.45) and (4.46) and the fact that < we deduce that
(x) (x0 ) (x0 ) 3 x x0
is dierentiable with derivative .
4.40 Dene
() =
+
= ()
+
= for some
= for some
so that
() =
+
=
1
=
To show that this is the only function with constant elasticity, dene
() =
()
() ()1
() ()
=
2
+1
219
(4.47)
()
=
()
then
() = ()
Substituting in (4.47)
() =
() ()
= 0 for every
+1
Therefore, is a constant function (Exercise 4.38). That is, there exists such
that
() =
()
= or () =
4.42 Dene : by
(x) = (x) [x0 ](x)
is dierentiable with
[x] = [x] [x0 ]
Applying Corollary 4.1.1 to ,
(x1 ) (x2 )
sup
x[x1 ,x2 ]
[x] x1 x2
sup
x[x1 ,x2 ]
[x] [x0 ] x1 x2
x[x1 ,x2 ]
Then by the (strong) separating hyperplane theorem (Proposition 3.14) there exists a
linear functional on such that
(y) > (a)
for every a
(4.48)
where
() = ( (x1 ) (x2 )) = ( (x1 )) ( (x2 ))
is a functional on . By the mean value theorem (Theorem 4.1), there exists some
[x1 , x2 ] such that
x
x](x1 x2 ) = [
x](x x2 ) = ()
(x1 ) (x2 )) = ( )[
for some contradicting (4.44).
4.46 Dene : [, ] by
(
)
(
)
() = () () () () () ()
1
log 1 +
log 2 + . . .
log
=
lim () =
and therefore
lim log (, x) =
1
2
log 1 +
log 2 + . . .
log
so that
1
lim (, x) = 1 2 . . .
4.49 Average cost is given by ()/ which is undened at = 0. We seek lim0 ()/.
By LH
opitals rule
()
()
= lim
0
0 1
= (0)
lim
1. Since lim ()/ () = k, for every > 0 there exists such that
(
) < /2 for every
>
(4.49)
(
)
For every > , there exists (Exercise 4.46)
(, ) such that
() ()
(
)
=
() ()
(
)
and therefore by (4.49)
() ()
< /2 for every >
() ()
2.
()
() ()
()
() ()
=
()
() ()
() ()
()
() () 1
=
() ()
1
()
()
()
()
For xed
lim
()
()
()
()
=1
()
()
()
()
21 = 2
12 = 2
22 = 2
11 [x0 ] 12 [x0 ]
21 [x0 ] 22 [x0 ]
(
=2
4.55
4.56 For any 1 , dene : by
() = () + [](1 ) + 2 (1 )2
is dierentiable on with
() = [] [] + [](1 ) 22 (1 ) = [](1 ) 22 (1 )
Note that (1 ) = (1 ) and
(0 ) = (0 ) + (0 )(1 0 ) + 2 (1 0 )2
(4.50)
1
(
)
2
+1
+ [](1 ) + +1 (1 )
!
is dierentiable on with
1
1
() = [] [] + [](1 ) [](1 ) + (3) [](1 )2 (3) [](1 0 )2 + . . .
2
2
1
1 (+1)
()
1
[](1 )
+
+
[](1 ) ( + 1)+1 (1 )
( 1)!
!
All but the last two terms cancel, so that
1
() = (+1) [](1 ) ( + 1)+1 (1 ) =
!
223
)
1 (+1)
[] ( + 1)+1 (1 )
!
1 +1
[
] ( + 1)+1 = 0
or
+1 =
1
+1 [
]
( + 1)!
1 (3)
[
]3
3!
and
1
()
= (3) [
]()
2
3!
] is bounded on [0, ] and therefore
Since 3 , (3) [
lim
()
1
= lim (3) [
]() = 0
0 3!
2
(
)
() = [()](x)
= 2 [()] [](x x0 )
= 2 [()](x)(2)
224
)
(
() () = (1) [()](x)(1)
= [()] [](x x0 )(1)
= [()](x)()
(x) = 2
(
)
(x) = (21 , 22 ) with (0, 0) = 0
)
x
= 21 + 21 2 + 22
Not surprisingly, we conclude that the best quadratic approximation of a quadratic
function is the function itself.
4.61
(4.52)
(4.53)
and therefore
(x1 ) = (x2 ) = x1 = x2
2. Let = (). Since the restriction of to is one-to-one and onto, and therefore
there exists an inverse 1 : . For any y1 , y2 , let x1 = 1 (y1 ) and
x2 = 1 (y2 ). Substituting in (4.53)
1 (y1 ) 1 (y2 ) y1 y2
so that
1
(y1 ) 1 (y2 ) 1 y1 y2
1 is continuous.
225
(1) = x1
() = x
( (
)
)
() = x () (x0 )
Then
(0) = 0 = (1)
By the mean value theorem (Mean value theorem), there exists 0 < < 1 such that
() and
() = x [()]x = x (())x = 0
which contradicts the deniteness of .
4.63 Substituting the linear functions in (4.35) and (4.35), the IS-LM model can be
expressed as
(1 ) = 0 + 0 +
+ = /
which can be rewritten in matrix form as
)(
) (
)
(
1
=
/
where = 0 + 0 + . Provided the system is nonsingular, that is
1
= 0
=
the system can be solved using Cramers rule (Exercise 3.103) to yield
(1 )/ ( )
( ) /
=
0
Only = 0 satises this equation. Substituting = 0, the equation reduces to
x (x0 , 0 )x = 0
which has a unique solution x = 0 since x [x0 , 0 ] is nonsingular. Therefore the
kernel of [x0 , 0 ] consists of the single point (0, 0) which implies that [x0 , 0 ] is
nonsingular (Exercise 3.19).
226
Economic considerations dictate that the numerator ( ) is positive while the denominator ( ) is negative. Preceded by a negative sign, the slope of the LM curve
is positive. The LM curve would be vertical (innite slope) if the interest elasticity of
the demand for money was zero ( = 0).
4.67 Suppose is convex. For any x, x0 let
)
(
() = x + (1 )x0 (x) + (1 ) (x0 )
for 0 < < 1. Subtracting (0) = (x0 )
() (0) (x) (x0 )
and therefore
(x) (x0 )
() (0)
() (0)
x [x0 ] = [x0 ](x x0 )
=
(4.54)
= 0
() = ( 1) 2 = 0
indeterminate
if = 1
if = 2, 4, 6,
otherwise
Therefore, the power function is convex if is even, and neither convex if 3 is odd.
It is both convex and concave when = 1.
4.73 Assume is quasiconcave, and (x) (x0 ). Dierentiability at x0 implies for
all 0 < < 1
(x0 + (x x0 ) = (x0 ) + (x0 )(x x0 ) + () (x x0 )
where () 0 and 0. Quasiconcavity implies
(x0 + (x x0 ) (x0 )
and therefore
(x0 )(x x0 ) + () (x x0 ) 0
Dividing by and letting 0, we get
(x0 )(x x0 ) 0
Conversely, assume is a dierentiable functional satisfying (4.36). For any x1 , x2
with (x1 ) (x2 for every x, x0 ), dene : [0, 1] by
(
)
)
(
() = (1 )x1 + x2 = x1 + (x2 x1 )
We need to show that () (1) for every (0, 1). Suppose to the contrary that
(1 ) < (1). Then (see below) there exists 0 with (0 ) < (1) and (0 ) < 0. By
the Chain Rule, this implies
(0 ) = (x0 )(x2 x1 ) < 0
critical where x0 = x1 + (x2 x1 ). Since x2 x0 = (1 )(x2 x1 ) this implies that
(0 ) =
1
(x0 )(x2 x0 )
1
229
(4.55)
= (x0 ) < 0
Since is continuous, there exists > 0 such that
(x + x1 ) > (x0 ) and (x0 )(x + x1 x0 ) < 0
contradicting the quasiconcavity of (4.36).
4.75 Suppose
(x) < (x0 ) = (x0 )(x x0 ) < 0
This implies that
(x) > (x0 ) = (x0 )(x x0 ) > 0
and is pseudoconcave.
4.76
(4.56)
(4.57)
x (1 )x2 )/
Since x1 = (
=
x1 x
)
1(
1
(1 )x2
)
x
(x2 x
x =
(1 + ) (x) (x)
= lim
0
(1 + ) 1
= lim
(x)
0
1
lim
and therefore
x (x) = (x)
(4.58)
(4.59)
(x)
(x) =
=
(x) =
(x)
(x)
=1
(x) =
(x)
=
(x)
=1
that is
(x) = (x)
By Eulers theorem, is homogeneous of degree .
4.83 Assume () is dierentiable and homogeneous of degree = 0. By Eulers
theorem
[x](x) = (x) = 0
for every x such that (x) = 0.
4.84 satises Eulers theorem
(x) =
(x)
=1
232
(x) + (x)
=1
or
( 1) (x) =
(x)
= 1, 2, . . . ,
=1
(x) =
=1
(x) = x x
=1 =1
( (x) (x)
=
( (x)) (x)
(x)
=
(x)
233
Chapter 5: Optimization
5.1 As stated, this problem has no optimal solution. Revenue () increases without
bound as the rate of exploitation gets smaller and smaller. Given any positive exploitation rate 0 , a smaller rate will increase total revenue. Nonexistence arises from
inadequacy in modeling the island leaders problem. For example, the model ignores
any costs of extraction and sale. Realistically, we would expect per-unit costs to decrease with volume (increasing returns to scale) at least over lower outputs. Extraction
and transaction costs should make vanishingly small rates of output prohibitively expensive and encourage faster utilization. Secondly, even if the government weights
future generations equally with the current generation, it would be rational to value
current revenue more highly than future revenue and discount future returns. Discounting is appropriate for two reasons
Current revenues can be invested to provide a future return. There is an opportunity cost (the interest foregone) to delaying extraction and sale.
Innovation may create substitutes which reduce the future demand for the fertilizer. If the government is risk averse, it has an incentive to accelerate exploitation,
trading-o of lower total return against reduced risk.
5.2 Suppose that x is a local optimum which is not a global optimum. That is, there
exists a neighborhood of x such that
(x , ) (x, ) for every x ()
and also another point x () such that
(x , ) > (x , )
Since () is convex, there exists (0, 1) such that
x + (1 )x ()
By concavity of
(x + (1 )x , ) (x , ) + (1 ) (x , ) > (x , )
contradicting the assumption that x is a local optimum.
5.3 Suppose that x is a local optimum which is not a global optimum. That is, there
exists a neighborhood of x such that
(x , ) (x, ) for every x ()
and also another point x () such that
(x , ) > (x , )
Since () is convex, there exists (0, 1) such that
x + (1 )x ()
234
By strict quasiconcavity of
(x + (1 )x , ) > min{ (x , ), (x , ) } > (x , )
contradicting the assumption that x is a local optimum. Therefore, if x is local
optimum, it must be a global optimum.
Now suppose that x is a weak global optimum, that is
(x , ) (x, ) for every x
but there another point x such that
(x , ) = (x , )
Since () is convex, there exists (0, 1) such that
x + (1 )x ()
By strict quasiconcavity of
(x + (1 )x , ) > min{ (x , ), (x , ) } = (x , )
contradicting the assumption that x is a global optimum. We conclude that every
optimum is a strict global optimum and hence unique.
5.4 Suppose that x is a local optimum of (5.3) in , so that
(x ) (x)
(5.80)
235
5.5 We apply the reasoning of Example 5.5 to each component. Formally, for each ,
let be the projection of along the axis
( ) = (1 , 2 , . . . , 1 , , +1 , . . . , )
maximizes ( ) over + , for which it is necessary that
( ) 0
( ) = 0
Substituting
( ) = [x ]
yields
[x ] 0
[x ] = 0
(1,2,3)
3
2
2
1
1
=0
6
2
1 1/6 2/3
1=0
(, ) =
3
(, ) =
1
9
1 1/6 1 1/3
1
=
9 9
3
238
5.13 Since the log function is monotonic, nding the maximum likelihood estimators is
equivalent to solving the maximization problem ( Exercise 5.12)
max log (, ) =
,
log 2 log 2
( )2
2
2 =1
For (
,
2 ) to solve this problem, it is necessary that log be stationary at (
,
2 ),
that is
,
2) =
log (
1
(
) = 0
2 =1
log (
,
2) =
+ 3
(
)2 = 0
=1
=
=
2 =
=1
1
(
)2
=1
(
(x) =
21
22
A necessary condition for the optimal solution is that these be proportional that is
)
(
(
)
21
2(1 1)
=
() =
= (x)
2(2 1)
22
which can be solved to yield
1 = 2 =
1
1+
21
subject to (x) = 1 + 2 2 = 0
The rst-order conditions for a (local) optimum are
1 (x ) = 1 = 1 ( )
1 0
2 = 2 ( )
2 (x ) =
2
2 0
(
2
1 (1 ) = 0
)
=0
2
2
(5.81)
(5.82)
= 1, 2, . . . ,
= + 1, + 2, . . . ,
=1
x [x , y ]
y [x , y ] +
=1
=+1
y [x , y ]
=1
with
[x , y ] =
[x , y ] if > 0
=1
1 ,2
240
subject to
(1 , 2 ) = 0
By the implicit function theorem, there exists a function : such that
1 = (2 )
(5.83)
and
((2 ), 2 ) = 0
for 2 in a neighborhood of 2 . Furthermore
[2 ] =
1 [x ]
2 [x ]
(5.84)
Using (5.41), we can convert the original problem into the unconstrained maximization
of a function of a single variable
max ((2 ), 2 )
2
If 2 maximizes this function, it must satisfy the rst-order condition (applying the
Chain Rule)
1 [] [2 ] + 2 [x ] = 0
Substituting (5.42) yields
(
)
1 [x ]
1 []
+ 2 [x ] = 0
2 [x ]
or
1 []
1 [x ]
=
2 [x ]
2 [x ]
5.18 The consumers problem is
max (x)
x
subject to p x =
Solving for 1 from the budget constraint yields
=2
1 =
1
Substituting this in the utility function, the aordable utility levels are
(
)
=2
, 2 , 3 , . . . ,
(2 , 3 , . . . , ) =
1
(5.85)
(
)
=2
(2 , 3 , . . . , ) = 1 (x )
+ (x ) = 0
1
241
which reduces to
1 (x )(
1
) + (x ) = 0
or
1
1 (x )
=
(x )
= 2, 3, . . . ,
This is the familiar equality between the marginal rate of substitution and the price
ratio (Example 5.15). Since our selection of 1 was arbitrary, this applies between any
two goods.
5.19 Adapt Exercise 5.6.
5.20 Corollary 5.1.2 implies that x is a global maximum of (x, ), that is
(x , ) (x, ) for every x
which implies
(x )
(x ) (x)
A fortiori
(x ) (x) for every x = { x : g(x) = 0 }
5.21 Suppose that x is a local maximum of on . That is, there exists a neighborhood
such that
(x ) (x) for every x
But for every x , (x) = 0 for every and
(x) = (x) +
(x) = (x)
and therefore
(x ) (x) for every x
5.22 The area of the base is
Base = 2 = /3
and the four sides
Sides = 4
=4
3 12
4
=
16
2
=
3
242
,,
subject to = 32
The Lagrangean is
(, , , ) = + 2 + 2 .
The rst-order conditions for a maximum are
= + 2 = 0
(5.86)
= + 2 = 0
(5.87)
= 2 + 2 = 0
= 32
(5.88)
1
or =
But if = 1/, (5.44) implies that = 0 and the volume is zero. Therefore, we conclude
that = . Substituting = in (5.45) and (5.46) gives
+ 2 =
4 = 2
from which we deduce that
=
Substituting in (5.45)
+ 2 =
4
= 4
=4
=2
which implies
3
2 =
2
1 =
2 =
(5.89)
1
1
= 1
1
2
(5.90)
11
1 2
(5.91)
= 2
1 1 + 2 2
(1)1
1
1 2
= 1 2
which simplies to
1
2
=
(1 )1
2
or
2 2 =
(1 )
1 1
+ (1 )
1 1 =
1 1 +
244
(5.92)
+ (1 ) 1
(1 )
+ (1 ) 2
1 2
(x, ) =
1 2 . . . (1 1 + 2 2 + ... + )
=
. . .
=
1 2 . . .
()
= 0
or
()
=
= 1, 2, . . . ,
()
=1
Letting
=1
()
=
=
=1
=1
= , this implies
(x)
=
Substituting in (5.93)
=
or
=
= 1, 2, . . . ,
245
(5.93)
2
2 1
1
2 =
1 1
( ) 1
2
2 =
1
1
Substituting in the production constraint
(
)
2 1
+
1 =
1
(
)
( ) 1
2
1+
1 =
1
1
we can solve 1
(
1
1+
(
1 =
1+
2
1
2
1
)1
) 1
)1/
) 1
Similarly
(
2 =
(
1+
1
2
)1/
) 1
5.28 Example 5.27 is awed. The optimum of the constrained maximization problem
( = /2) is in fact a saddle point of the Lagrangean. It maximizes the Lagrangean in
the feasible set, but not globally.
The net benet approach to the Lagrange multiplier method is really only applicable
when the Lagrangean (net benet function) is concave, so that every stationary point
is a global maximum. This requirement is satised in many standard examples, such
as the consumers problem (Example 5.21) and cost minimization (Example 5.28). It
is also met in Example 5.29. The requirement of concavity is not recognized in the
text, and Section 5.3.6 should be amended accordingly.
5.29 The Lagrangean
(x, ) =
(
( ) +
=1
(5.94)
=1
can be rewritten as
(x, ) =
)
(
( ) +
(5.95)
=1
The th term in the sum is the net prot of plant if its output is valued at . Therefore,
if the company undertakes to buy electricity from its plants at the price and instructs
each plant manager to produce so as to maximize the plants net prot, each manager
246
will be induced to choose an output level which maximizes the prot of the company
as a whole. This is the case whether the price is the market price at which the
company can buy electricity from external suppliers or the shadow price determined
by the need to satisfy the total demand . In this way, the shadow price can be used
to decentralize the production decision.
5.30 The Lagrangean for this problem is
(1 , 2 , 1 , 2 ) = 1 2 1 (21 + 222 3) 2 (221 + 22 3)
The rst-order conditions for stationarity
1 = 2 21 1 42 1 = 0
2 = 1 41 2 22 2 = 0
can be written as
2 = 2(1 + 22 )1
(5.96)
1 = 2(21 + 2 )2
(5.97)
1 0
1 (21 + 222 3) = 0
221 + 22 3 0
2 0
2 (221 + 22 3) = 0
First suppose that both constraints are slack so that 1 = 2 = 0. Then the rst-order
conditions (5.96) and (5.97) imply that 1 = 2 = 0. (0, 0) satises the Kuhn-Tucker
conditions. Next suppose that the rst constraint is binding while the second constraint
have two solutions,
is slack
(2 = 0). The rst-order
and (5.97)
conditions (5.96)
( )
(, )
=
(, )
(1 )
Using the revenue function
(, ) = ( (, )) (, )
the marginal revenue products of capital and labor are
(, ) = () (, )
(, ) = () (, )
so that their ratio is equal to the ratio of the marginal products
(, )
(, )
=
(, )
(,
247
(, )
=
(, )
1
whereas the necessary condition for cost minimization is (Example 5.16)
(, )
=
(, )
subject to g(x) 0
can be transformed into an equivalent equality constrained problem
max (x)
x,s
x (x ) =
x (x , s ) =
x (x )
s (x, s) =
(5.98)
0 = s (x )
s = 0
s0
(5.99)
Condition (5.98) implies that 0 for every . Furthermore, rewriting the constraint
as
s = g(x)
the complementary slackness condition (5.99) becomes
g(x) = 0
g(x) 0
subject to g(x) = 0
is equivalent to the problem
max (x)
x
subject to g(x) 0
g(x) 0
By the Kuhn-Tucker theorem (Theorem 5.3), there exists nonnegative multipliers
+
+
1 , 2 , . . . , and 1 , 2 , . . . , such that
(x ) =
+
(5.100)
[x ]
[x ] = 0
248
+
(x) = 0 and (x) = 0
= 1, 2, . . . ,
Dening = +
, (5.100) can be written as
(x ) =
[x ]
with Lagrangean
= c x x
Then there exists 0 such that
x = c = 0
that is, = c. Conversely, if there is no solution, there exists x such that x 0
and
c x > c 0 = 0
5.35 There are two binding constraints at (4, 0), namely
(1 , 2 ) = 1 + 2 4
(1 , 2 ) = 2 0
with gradients
(4, 0) = (1, 1)
(4, 0) = (0, 1)
which are linearly independent. Therefore the binding constraints are regular at (0, 4).
5.36 The Lagrangean for this problem is
(x, ) = (x) (p x )
and the rst-order (Kuhn-Tucker) conditions are (Corollary 5.3.2)
[x , ] = [x ] 0
p x
x 0
0
( [x ] ) = 0
(p x ) = 0
(5.101)
(5.102)
Case 1 > 0 This implies that p x = , the consumer spends all her income.
Condition (5.101) implies
[x ] for every with [x ] = for every for which > 0
This case was analyzed in Example 5.17.
Case 2 = 0 This allows the possibility that the consumer does not spend all her
income. Substituting = 0 in (5.101) we have [x ] = 0 for every . At the
optimal consumption bundle x , the marginal utility of every good is zero. The
consumer is satiated, that is no additional consumption can increase satisfaction.
This case was analyzed in Example 5.31.
In summary, at the optimal consumption bundle x , either
the consumer is satiated ( [x ] = 0 for every ) or
the consumer consumes only those goods whose marginal utility exceeds the
threshold [x ] and adjusts consumption so that the marginal
utility is proportional to price for all consumed goods.
5.37 Assume x (x ). Then there exists
such that x + x for every
0 .
Dene ([0,
]) by () = (x + x). If x is a local maximum,
has a local maximum at 0, and therefore (0) 0 (Theorem 5.1). By the chain rule
(Exercise 4.22), this implies
(0) = [x ](x) 0
and therefore x
/ + (x ).
5.38 If x is a tangent vector, so is x for any nonnegative (replace 1/ by / in
the preceding denition. Also, trivially, x = 0 is a tangent vector (with x = x and
= 1 for all ). The set of all vectors tangent to at x is therefore a nonempty
cone, which is called the cone of tangents to at x .
To show that is closed, let x be a sequence in converging to some x . We
need to show that x . Since x , there exist feasible points x and
such that
(x x )/ x as
For any choose such that
x x
(x x )/ x (x x )/ x + x x 1
1
(x x )/ = (x + x x )/ = x. Therefore, x (x ).
5.40 Let dx (x ). Then there exists a feasible sequence {x } converging to x and a
sequence { } of nonnegative scalars such that the sequence {(x x )/ } converges
to dx. For any (x ), (x ) = 0 and
(x ) = [x ](x x ) + x x
where 0 as k . This implies
1
1
(x ) = [x ](x x ) + (x x )/
Since x is feasible
1
(x ) 0
and therefore
[x ]((x x )/ ) + (x x )/ 0
Letting we conclude that
[x ](dx) 0
That is, dx .
5.41 0 1 by denition. Assume dx 1 . That is
[x ](dx) < 0
[x ](dx) 0
for every (x )
for every (x )
(5.103)
(5.104)
5.42 Assume that g satises the Quasiconvex CQ condition at x . That is, for every
such that (
(x ), is quasiconvex, (x ) = 0 and there exists x
x) < 0.
x . Quasiconvexity and regularity implies that
Consider the perturbation dx = x
for every binding constraint (x ) (Exercises 4.74 and 4.75)
(
x) < (x ) = (x ) (
x x ) = (x ) dx < 0
That is
[x ](dx) < 0
Therefore, dx 0 (x ) = and g satises the Cottle constraint qualication condition.
5.43 If the binding constraints (x ) are regular at x , their gradients are linearly
independent. That is, there exists no = 0, (x ) such that
[x ] = 0
(x )
1 (x ) =
(x )
(x )
1 =
(x )
(x )
Now
= { dx : [x ](dx) 0 }
and therefore
1 =
(x )
[x ](x x ) 0
[x ](x x ) =
If
(x )
(x )
x 0
(
)
(x ) (x ) x = 0
)
(x ) (x ) x 0
and therefore
(
)
(x ) (x ) (x x ) 0
or
(x ) (x x )
(x ) (x x ) 0
253
Following the hint, we allow > 0, retaining the assumption that = 0. We must
be alert to the possibility that = 0. With = 0, the constraints become
2 + 30
2 + 3 25
+ 20
The rst constraint is redundant, which implies that = 0. If > 0, complementary
slackness requires that
= 3 3 = 0
or
= 3(1 )
(5.105)
for every 1
the second and third constraints. The feasible solution = 0, = 5, = 10, where
the constraints are linearly dependent, is known as a degenerate solution. Degeneracy
is a signicant feature of linear programming, allowing the theoretical possibility of a
breakdown in the simplex algorithm. Fortunately, such breakdown seems very rare in
practice. Degeneracy at the optimal solution indicates multiple optima.
One way to proceed in this example is to arbitrarily designate one constraint as redundant, assuming the corresponding multiplier is zero. Arbitrarily choosing = 0 and
proceeding as before, complementary slackness ( > 0) requires that
= 3 2 = 0
or
= 3 2
(5.106)
3
2
c1 0
c2 0
For any (0, 1),
= 1 + (1 )2
c = c1 + (1 )c2 0
and therefore (
c, ) . This shows that is convex. Let 1 = (1, 1, . . . , 1) .
Then (c 1, + 1) int = . There has a nonempty interior.
5.49 Let (c, ) int . This implies that c < 0 and > . Since is monotone
(c) (0) = z <
which implies that (c, )
/ .
5.50 The linear functional can be decomposed into separate components, so that
there exists (Exercise 3.47) and such that
(c, ) = (c)
Assuming , there exists (Proposition 3.4) such that (c) = c and
therefore
(c, ) = c
The point (0, + 1) belongs to . Therefore, by (5.75),
(0, ) (0, + 1)
255
(5.107)
But (
c, ) and (5.74) implies
c 0
and therefore = 0 implies
0
contradicting (5.107). Therefore, we conclude that > 0.
5.52 The utilitys optimization problem is
max (, ) =
, 0
=1
( ( ) ) 0
subject to (y, ) = 0
= 1, 2, . . . ,
The demand independence assumption ensures that the objective function is concave,
since its Hessian
1 0 . . .
0
0
0
2 . . . 0 0
=
0
...
0
0
...
0
0
is nonpositive denite (Exercise 3.96). The constraints are linear and hence convex.
Moreover, there exists a point (0, 1) such that for every = 1, 2, . . . ,
(0, 1) = 0 1 < 0
Therefore the problem satises the conditions of Theorem 5.6. The optimal solution
(y , ) satises the Kuhn-Tucker conditions, that is there exist multipliers 1 , 2 , . . . ,
such that for every period = 1, 2, . . . ,
= ( ) 0
( ( ) ) = 0
( ) = 0
256
(5.108)
(
0
=1
=0
(5.109)
=1
=1
( ( ) ) 0
( )
=1
In o-peak periods ( < ), complementary slackness requires that = 0 and therefore from (5.108)
( ) =
assuming > 0. In peak periods ( = )
( ) = +
We conclude that it is optimal to price at marginal cost in o-peak periods and charge
a premium during peak periods. Furthermore, (5.109) implies that the total premium
is equal to the marginal capacity cost
= 0
=1
=1
Peak
O-peak
=0
= 0
=1
=1
=1
=1
( )
( + )
+
=1
+ 0 = (, )
=1
Under the optimal pricing policy, revenue equals cost and the utility breaks even.
257
g
0
g
0
)( ) ( )
x
0
=
y
0
(6.28)
(6.29)
g x = 0
(6.30)
(
)
= (x) g(x) c
By Corollary 6.1.1
(c) = c =
6.3 Optimality implies
(x1 , 1 ) (x, 1 ) and (x2 , 2 ) (x, 2 ) for every x
In particular
(x1 , 1 ) (x2 , 1 ) and (x2 , 2 ) (x1 , 2 )
Adding these inequalities
(x1 , 1 ) + (x2 , 2 ) (x2 , 1 ) + (x1 , 2 )
258
(6.31)
The increase in revenue in moving from 2 to 1 is greater than the increase in cost.
Similarly
2 2 2 (2 ) 1 1 2 (1 )
which can be rearranged to yield
2 (1 ) 2 (2 ) 1 1 2 2
Combining the previous inequality with (6.31) yields
2 (1 ) 2 (2 ) 1 (1 ) 1 (2 )
(6.32)
since is convex and therefore (w, ) is symmetric (Theorem 4.2) and nonnegative
denite (Proposition 4.1).
6.6 By Shephards lemma (6.17)
(, ) = (, )
259
2
[w, ]
=
= [w, ]
Therefore
[w, ] 0 [w, ] 0
6.7 The demand functions must satisfy the budget contraint identically, that is
=1
[p, ] = 1
=1
This is the Engel aggregation condition, which simply states that any additional income
be spent on some goods. Multiplying each term by /( )
=1
[p, ] = 1
(p, )
= 1
=1
where = / is the budget share of good . On average, goods must have unit
income elasticities.
Dierentiating the budget constraint with respect to
[p, ] + (, ) = 0
=1
This is the Cournot aggregation condition, which implies that an increase in the price
of is equivalent to a decrease in real income of . Multiplying each term in the
sum by / gives
=1
[p, ] =
Multiplying through by /
=1
[p, ] =
=1
260
6.8 Supermodularity of (x, , w) follows from Exercises 2.50 and 2.51. To show
strictly increasing dierences, consider two price vectors w2 w1
(x, , w1 ) (x, , w2 ) =
(1 )
=1
(2 )
=1
(2 1 )
=1
Since w2 w1 , w2 w1 0 and
2
=1 (
1 ) is strictly increasing in x.
12
22
1
=
22
21
12
11
21
Therefore
21
1 2 =
<0
0
261
if 21 > 0
otherwise